Contentsirdoc.quamnet.com/irpdf/e/0926/egana_jewellery_2005an_e.pdfContents Chairman’s Statement Board of Directors Senior Executive Management The Group The Brands Corporate Information

Contents

Chairman’s StatementBoard of DirectorsSenior Executive ManagementThe GroupThe BrandsCorporate InformationFinancial HighlightsGroup Main OfficesFinancial Contents

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Dear Shareholders

On behalf of the Board of Directors (“the Board”), I take the pleasure

to present the Company’s Annual Report for the year ended 31st May,

2005.

As a specialist in luxury and fashion branded jewellery industry, we

continue to capitalise on the Group’s multi-brand structure. In April

2005, we have introduced high-end jewellery collections designed and

manufactured by our operations in Germany to our business partners

with positive response.

Carrera stainless steel jewellery, as a lifestyles accessory line, has

been introduced to the Middle East and European markets with

encouraging response. We will introduce in 1Q 2006 CERRUTI 1881

ornaments line to the market, continuing the success of CERRUTI

1881 watch worldwide and taking advantage of the extensive

distribution network. JOOP! jewellery is a major element of our fashion

segment strategy in the jewellery market. It has a strong demand in

Germany, respectively Europe.

In the fashion, both Esprit and MEXX are performing to our

satisfaction. We are getting wider range of distribution network in the

existing market, in addition to developing new markets in Eastern

Europe and Asia.

Chairman’s Statement

We, as a subsidiary of EganaGoldpfeil (Holdings) Limited are in a

better position to leveraging on the network of the timepiece and

leather / lifestyle divisions to expand our global coverage. Currently,

we have access to 6,000 Points-of-sales (4,800 POS in FY04) in 55

countries (48 countries in FY04) as compared to EganaGoldpfeil

Group’s 13,800 POS in 100 countries.

Through the acquisition of Salamander, the Group has now access to a

substantial distribution in Eastern Europe.

In the US, we are continuously focusing on related diversification

strategy for the high-end market and leveraging on affordable luxury

and prestigious segment. In the US, the bridal business dominates the

jewellery market with 40% of bridal business using platinum jewellery.

In line with our Group’s commitment to innovations for product

development, our German company has developed a new technique to

make platinum jewellery with more unique design, larger surface and

yet considerably lighter than previously possible. The new jewellery is

made of the highest purity of platinum. It is not cast but made

through stamping and tooling with the highest workmanship. The

initial feedback from customers in the US and Europe is encouraging.

It is expected that similar positive feedback would be forthcoming

from Japan and China on its future launch.

SHAREH CUSTOMER SATISFACTION.

TREND SE

OLDER VALUE.FASHION CONSCIOUSNESS.

TTER.PRODUCT INNOVATION.

In Japan, we have successfully leveraged on 60 Goldpfeil / Comtesse

shops. We are taking further steps to introduce Carrera jewellery and

high-end platinum jewellery collection under Abel & Zimmermann in

the Japan market.

Turning to China market, we have developed a network of 300 POS for

Pierre Cardin and Esprit items. Given our proven experience as major

exhibitor at international trade fairs, we have been participating in

jewellery shows in China for attracting distributors and retail partners

for furtherance of our business in the Mainland.

In order to attract customers from our existing coverage in Western

Europe and Eastern Europe, starting from last Autumn, the Exhibition

Center at our European Headquarters at Offenbach / Frankfurt,

Germany has been hosting EganaGoldpfeil Fairs.

During the FY 04/05, the geographical revenue split for Europe

represents 76% (64% in FY 03/04); Asia Pacific: 15% (29% in FY

03/04) and the US: 9% (7% in FY 03/04) respectively.

The revenue split for business segment in FY 04/05 is demonstrated

as 77% for branded products and 23% contributed by Private label

(Bought-in-finished goods) business (56% and 44% in FY 03/04

respectively).

70% of our branded jewellery is produced in-house under our

production facility network in Europe (2) and Asia (4) for global

product development and production, which supports 80% of our

Group revenue.

We are committed to continuing to provide quality product and

services as well as innovativeness for customer’s satisfaction with a

view to sustaining a leading stance in the jewellery industry.

On behalf of the Board, I would like to express our heartfelt thanks for

the commitment and contribution of our employees to the Group. With

their dedication; our core value belief (“Caring, Integrity and

Fairness”) governing our Corporate Govenance philosophy; and the

proven business model, the Group remains confident of realizing our

achievable visions for a promising future.

Hans-Joerg Seeberger

Chairman and Chief Executive

Hong Kong, 14th September, 2005

FUTURE STRATEGY.UNIQUE

WORLDWIDE SUCCESS.

Chairman’s Statement

BRAND PYRAMID.APPROACH.

Hans-Joerg SEEBERGERChairman and Chief Executive

Peter Ka Yue LEEExecutive Director

Michael Richard POIXExecutive Director

Ho Yin CHIKExecutive Director

David Wai Kwong WONGExecutive Director

Board of Directors

MANAGEMENT BOARD.

SERIOUS

Kim Hung Liu

54, joined the Group in 1987. He is the Director-in-Charge of

Everstone Limited and Managing Director of Oro Design Limited,

responsible for supervising the overall production and operations of

the Group's manufacturing entities in Hong Kong and the PRC.

Christel Patotschka

Is the managing director of Abel & Zimmermann GmbH & Co KG,

Pforzheim. She is responsible for all belongings of the company’s

assets and properties, especially for the sales, product development

and marketing activities. She has more than 25 years experience in

the jewellery business and joined the Group in 2001.

Werner Roth

62, is the Managing Director of Guthmann + Wittenauer Schmuck

GmbH and in charge of manufacturing and information technology

functions of the company. He has been with Guthmann + Wittenauer

since 1971.

Senior Executive Management

Dr. Hans Peter Barth

50, is the Deputy Executive Director of Egana Schmuck und Perlen

GmbH, Offenbach; the Deputy Executive Director of Guthmann +

Wittenauer Schmuck GmbH, Pforzheim, and the Managing Director of

Abel & Zimmermann GmbH & Co KG, Pforzheim, responsible for the

companies marketing and sales strategies. He joined the Group in

2004.

Kirsten Dankert

Joined the Group in 1997. She is the Sales and Marketing Director of

Oro Design Limited and is responsible for the business development,

product design as well as brand management within the jewellery

division.

Jacquelin Grosser-Samuels

Is a board member and the President of EganaGoldpfeil (America)

Corp., Egana Jewelry & Pearls (America) Corp. and Jacquelin Designs

Enterprises, Inc. She manages the fine jewellery division and oversees

the development of the Group's operations in North America. She

joined the Group in 1997.

KNOW-HOW.“The way to achieve success is first to have a definite, clear, practical ideal - a goal, an objective. Second,have the necessary means to achieve your ends - wisdom, money, materials, and methods. Third, adjust allyour means to that end.” Aristotle, greek philosopher and scientist

TOGETHER.

WOR

Production

Guthmann + Wittenauer, Pforzheim

Bangkok (Thailand) Nan Ao (China) Nan Ao (China)

Egana jewellery and pearls products are manufactured in 4production plants, each specialized in its individual productsand production process.

Jewellery and Pearls major production plant locations• Pforzheim (Germany)

Gold and Platinum jewellery production• Nan Ao (China)

Gold and Silver jewellery production• Bangkok (Thailand)

Gold,Silver and Platinum jewellery production

EUROPESubsidiariesAustriaGermanyItalyThe NetherlandsSwitzerland

DistributionBelgiumBosnia & HercegovinaBulgariaCroatiaCyprusCzech RepublicDenmarkEstoniaFinlandFranceGreeceHungaryIrelandLatviaLithuaniaLuxemburg

MaltaMoskauNorwayPolandPortugalRomania Serbia & MontenegroSlovakiaSloveniaSpainSwedenTurkeyUkraineUnited Kingdom

ASIASubsidiariesChinaHong KongIndiaJapan

DistributionIndonesiaIsraelKoreaMacauMalaysiaPhilippinesSingaporeSri LankaTaiwan

Asia PacificDistributionAustraliaNew Zealand

NORTH AMERICASubsidiariesUnited States of America

AFRICA / MIDDLE EASTDistributionBahrainEgyptIranLebanonMoroccoQatarSaudi ArabiaSouth AfricaUnited Arab Emirates

Distribution

LDWIDE.

Is perfection truly perfection when one proves that it can be perfected?

What is the proper superlative when all superlatives have been used

already? How do you define an eternity that has just become a bit more

eternal?

Platinum is clearly the most fascinating and appreciated of all precious

metals. Its reign is unanimously accepted, even its name is widely

acknowledged to be the synonym for premium products and services. But

the characteristics of this purest of all precious metals are also defining

some limitations, especially in its use for jewelry. Platinum is uniquely

hard, heavy and strong, its nature defies the liberty demanded by today’s

free-spirited approach to design. But not so anymore.

A team of specialists at Guthmann + Wittenauer have succeeded in

developing a technology and a process that for the first time offer

Platinum the opportunity to be everything it can be. The freedom that

creativity needs in order to thrive, the flexibility that the markets

demand, the possibilities that up to now were all but impossible.

The Extension of Eternity.The Beauty of Innovation.

This exclusive innovation will lead to new design dimensions

unprecedented in Platinum jewelry. New marketing opportunities arise,

and a dramatically increased business potential is assured.

The demise of technical restrictions, the end to creative restraints, the

beginning of a new era in Platinum jewelry: This outstanding Guthmann

+ Wittenauer innovation is nothing short of a revolution.

A revolution that top jewelers and luxury brands are eager to join, a

freedom that soon will be enjoyed by lovers of Platinum jewelry around

the world.

True to the synergetic philosophy of the Group, Abel & Zimmermann will

be the first brand to offer this new perspective of style and uniqueness.

Experience Platinum as you have never before, see and feel the beauty

set free by an innovation!

New Dimensions.

NEW DESIGNS.NEW

“Never look down to test the ground before taking your next step; only he who keeps his eyefixed on the far horizon will find his right road.” Dag Hammarskjold, poet

HORIZONS.New Experiences.

Tr

Tradition is nowadays far too often perceived as a marketable term for a

more or less “long existence” – but while history is certainly a

prerequisite for tradition it just as certainly is not enough to sustain the

claim. Tradition is a proud past that enriches the present and provides

a bridge to the future, a history lived, a story told, a lifetime of

achievements and accolades.

Tradition is what Abel & Zimmermann proudly calls its most valuable

future potential. Because in our time so much can be simulated and

reproduced, we treasure what cannot be: Experience and remembrance,

originality and innovation, uniqueness and joy. Even in Pforzheim, where

jewelry is very much part of the local culture, Abel & Zimmermann stands

out as an example for the eternal fascination with a craft that aspires for

nothing less than beauty and is one of the most sought-after partners for

the finest jewelers around the world.

Founded in the year 1885, the manufacture quickly became a renowned

specialist for chains bracelets, flexible bangles and hardcollars in 18 ct.

gold and platinum. During first 120 years, it has won praise for its unique

creations and admiration for its impeccable quality and craftmanship,

being especially beloved in the U.S., where it has built long-time

relationships with selected retailers.

Being a member of the EganaGoldpfeil Group has enabled Abel &

Zimmermann to reach out to a wider and farther target group, while its

philosophy and expertise has enriched the group’s portfolio and

deepened the understanding of luxury.

The Past and Present.The Now and Happening.

A lot of Abel & Zimmermann’s appeal lies in the manufacturer’s tradition

of high-end jewelry with its implied promise of uniqueness, but the

company knows that a contemporary and future-oriented extension of its

offerings is not compromising its principles but rather enabling it to stick

to them. Therefore in 2004 the range saw its most notable modernization

when a new line of younger and more fashion-minded designer styles –

incorporating colored stones and silk ribbons – was successfully

introduced.

Two upcoming attractions are being presented to the market in the

business year 2005/2006: The Mini’s, resulting from the cooperation

with U.S. designer Jacquelin Grosser Samuel, will be presented in

Europe after enthusiastic market response in the USA. Playful diamond

jewelry, young and vibrant and accessible to a new target group.

The most spectacular premiere is one engineered in cooperation with

group member Guthmann + Wittenauer: Abel & Zimmermann will

introduce a line that amounts to nothing less than a new dimension of

platinum jewelry, showing once again how innovation can and must be

an essential element of tradition.

Now & then, now & forever.

Beautiful.Ete

aditional.rnal.

“To see a world in a grain of sand, and a heaven in a wild flower: Hold infinity in the palm ofyour hand, and eternity in an hour.” William Blake, author

The business year 2004/2005 has been a formidable one for Dugena

Jewellery. The brand, being something of an institution in its home

market Germany, has been thoroughly revitalized and shines brighter

than ever.

The Don’t: Do not rely on an asset and do not believe in institutionalized

success.

The Do: Evaluate especially the most settled brands regularly and explore

possibilities of elevating them to new levels and thus raising their value

and appeal.

Dugena really revamped its collection of jewelry, updating designs,

upgrading quality and upscaling the whole image in order to achieve a

better positioning in the market. The brand was able to do this by

tapping into the Group’s resources and making good use of the design

team and the production facilities. Now more styles than ever are unique

in the market, 14 ct. gold and diamonds are being featured by a

collection that was and is proud of its mass appeal.

Furthermore, implementing Dugena Jewellery within the Competence

Center, along prestigious brands like Abel & Zimmermann and Guthmann

+ Wittenauer, assures its clients of a first class service and handling.

The Do’s and Don’ts.The Oh’s and Ah’s of the Market.

The past business year also provided new marketing opportunities, as a

variety of campaigns were rolled out, directed at different segments of

the broad target group: Concepts behind claims like “Wünsch Dir was”

(“make a wish”) and “Moments” were backed up by new products as an

reenergized POS appearance, promoting the new styles and lines as well

as the brand image.

The coordinated efforts managed to consolidate Dugena’s new position

in the market and were mirrored by the complementing activities of the

brand’s dedicated trade partners, who for the first time ever were invited

to participate actively in “round tables” ensuring the market

compatibility of this impussive product and marketing intitiative.

After a very successful test phase, a new collection will be widely

introduced in the business year 2005/2006: “Blue Fire” is a range of

innovative diamond jewelry which has been developed in cooperation

with jewelers and designers. Backed by intensive advertising and POS

promotions, this new sub-brand with its wholesome 3-year-concept

clearly is effective in enabling Dugena to enter a higher segment of the

market in the very next future, thus increasing profitability as well as the

brand impact.

The Relevance of Ex

The Pow

“Art is the creation of forms symbolic of human feeling.” Susanne Langer, poet

pertise.

er of Innovation.

For a broad target group almost nothing is as rewarding as having a piece

that has been – virtually and literally – touched by a star, enriched by the

star’s personality and that is being fully endorsed and proudly presented

by the star herself.

Katarina Witt fulfills every promise made by the collection named after

her. She is not only actively involved in the development and highly

interested in the market performance but also willing to go that extra mile

in terms of promoting “her” collection, from television appearances to

personal attendance at trade events like the EganaGoldpfeil fair in

Offenbach, as happened in January 2005 when she personally introduced

the new, streamlined collection and the seriously refined catalog concept.

Her support for the jewelry line was also a welcome bonus in the important

Christmas season 2004/2005: A special gift box packaging for the first

time ever featured a personal dedication by the beloved ice skating and

entertainment star, who is not only extremely popular in Germany but also

well known and respected on an international scale.

The Touch of Fame.The Famous Collection.

The golden jewelry introduced for the Fall/Winter season proved so popular

with consumers that a major collection adjustment according to the latest

market requirements seemed a logical conclusion.

A more stringent collection was presented for the Spring/Summer season,

consisting of 23 new silver styles and a total of 62 gold jewelry pieces

and attracting a positive market and media response. The success of the

Christmas marketing concept is being extended in 2005 by a Summer

Special emphasizing the fun, fashion and sports aspects of the season.

Katarina Witt jewelry has shown remarkable strength and “legs” in the

market, and the close cooperation has turned a successful partnership

into a valuable friendship. Only a true personality can bridge the gaps

between pleasure and business, hard work and easy going, fun and

commitment. Thank you, Katarina!

The Star we

The Synergy we Achieve.

Love.

PerThe

The Product

we Understand.

“The main ingredient of stardom is the rest of the team.” John Wooden, basketball player and coach

sonality.

Look!Cool!

“We are shaped and fashioned by what we love.” Johann Wolfgang von Goethe, author and poet

Good!Mood!

The Eye-catching

Joop! Jewellery is a major element of EganaGoldpfeil’s fashion segment

strategy in the jewelry market. This status naturally results from the

involvement in the brand through partial ownership of the brand name

itself – but it is also a status the collection has earned by groundbreaking

work and a proudly upheld fashion credibility.

Joop! Jewellery captures the fun spirit of the brand, its willingness to go

further and beyond any expectations, its understanding that fashion is

about exploring limits and setting not only trends but rather new

standards. The collection regularly redefines jewelry by playfully

adhering to and at the same time breaking the category’s rules. Visionary

expressions and exemplary executions, bright contrasts and delicate

harmony, outstanding ideas and stunning proportions, eye-catching

colors and sensual shapes... If one ever thought that it might be

impossible to find new aspects of a product explored for so long and by

so many, one must reconsider, faced with the repeatedly innovative

approach found by Joop! Jewellery.

The Emotional Exclamation Mark.The Fashion Exclamation of Jewelry!

The business year 2004/2005 saw a consolidation of the rapidly soaring

distribution network – Joop! Jewellery has transcended the product

category’s boundaries by being a sought-after offering in fashion retail

as well – plus the streamlining of collections and the introduction of

innovative lines that have the potential for lasting extensions. The start

of the Internet distribution went extremely well and is promising to add

not only to turnover but to the brand’s image outreach as well.

Joop! Jewellery will also profit from the close link to the Joop! design

teams and is focused on keeping the brand on the cutting-edge of

fashion and lifestyle.

You! must! feel! Joop!

The Mind-bending Creativity.The First-class

The Performan

Philosophy.

Design.

ce.

FEELING.TOUCHING.

L

OVING.KNOWING.

“I feel pretty, Oh, so pretty, I feel pretty and witty and bright!” Stephen Sondheim, West Side Story

Esprit jewel is widely perceived as having established a market segment

of its own, bringing complex design concepts to a broad, young and

fashion-minded target group. It has also played an essential role in

putting silver back on top of the list of most-wanted materials and has

set trends that have redefined the design approach in this now much

more crowded market segment.

Far from being coy about these achievements, the license line is

determined more than ever to keep its leading position. Apart from

further solidifying its dominant role in established European key markets

like Germany and Benelux, Esprit jewel is constantly extending its

distribution network, having just added a strong foothold in Eastern

Europe as well as a successful strengthening effort in China, where its

presence amounts to a leading positive in this particular market segment.

Understanding that its unique design and the brand image are its main

assets, Esprit jewel continues to present style ranges that cover basic as

well as trendy designs, offering a main collection that guides its strong

fan base through all aspects of the respective fashion season.

The Unmistakable Identity.The Perfect Expression of Contemporary Jewelry.

To strengthen the line of steel jewelry covering a growing and lucrative

market segment, Esprit jewel relaunched its steel collection in the

business year 2004/2005, presenting a more emotional design that is

able to make this “über-cool” material more accessible to the

mainstream target group the brand virtually “owns”.

In early 2004, Esprit jewel introduced its first jewelry line for kids,

consisting of strikingly cute styles for girls and boys. The innovative

approach paid off as the market for kids’ fashion in general is currently

growing progressively. Designs like “binky” and “pinky” step into new

jewelry territory with colored textile strings wrapped around the silver

elements, resulting in playful and funny “love at first sight” styles.

Rounding up the innovation initiative are cell-phone accessories that

offer an important jewelry option to the cheap and trashy offerings

typical of this segment. The successful line will be extended and more

widely introduced in the business year 2005/2006.

The vibesof innovative

of

benefitsThe

The Success.

brand management.

today’s fashion trends.

FANCY.FRENCH.F

FORMIDABLE.AN TASTIC.

“Beauty is composed of an eternal, invariable element whose quantity is extremely difficult to determine,and a relative element which might be, either by turns or all at once, period, fashion, moral, passion.”Jean-Luc Godard, film director

THE AFFORDABILITY

Brand awareness on an international scale is a major milestone in the

development of a brand – and this milestone has been passed on decades

ago by the ubiquitous Pierre Cardin label. That it at one point has been

even too ubiquitous has not hurt the overall appeal of a name that still

very much evokes associations of haute couture and savoir vivre.

Since acquiring ownership of the watch and jewelry licenses, the Group

managed to successfully relaunch and consolidate two businesses that

still have a lot of potential and are being successful in many international

key markets and some smaller ones that are just beginning to satisfy their

appetite for affordable luxury and a touch of je ne sais quoi.

The Spring/Summer season 2005 saw a relaunch of the Pierre Cardin

jewelry range, consisting of a restructured collection with new styles, a

reinvigorated brand image centering on the newly designed outlook, and

a new marketing campaign that emphasizes the uniqueness of Pierre

Cardin jewelry and establishes event- and holiday-focused concepts in

addition to the now yearly main collection. The close adherence to

market requirements (opportunities like e.g. Valentine’s, Mother’s Day

and first Communion are increasingly important for the trade) instantly

showed positive effects as the sales figure for Pierre Cardin jewelry

picked up.

The Worldwide BrandThe Language of Fashion.

The design approach once again focuses on the core values of the brand,

offering classical fashion pieces with the surprising twist associated with

Pierre Cardin. Polished rhodium plated surfaces with sparkling prong

setting of circonia such as “Croisière” or “Cascade” were the bestsellers

of an eclectic range that offers value-for-money and an ever-attractive

playful touch of French lifestyle.

The business year 2005/2006 is expected to be especially sparkling as

“Argent Diamant” is introduced to the market: Pierre Cardin’s take on

the trend towards the combination of silver with precious diamonds

encompasses 16 exclusive styles, each set with a diamond.

Accompanied by an exclusively designed POS environment, “Argent

Diamant” is poised to open up higher market segments to the brand that

has brought haute couture to the mass market.

Parlez-vous Pierre Cardin?

THE AMBIANCE OF

THE SAVOIR VIVRE.OF LUXURIOUS

HAUTE COUTURE.

EMOTIONS.

Mexx Jewels has managed to “break out” from its European home

markets. The sensible expansion of the distribution network in the past

business year brought the brand to markets in Asia and the Middle East,

starting from August 2005 on it will also be available in Canada.

Following the effects of the licensee change, the repositioning is still

going through a difficult phase of transition. The relaunch permitted a

modest increase and a foundation for future growth. Managing to make

the most out of a delicate situation, the build-up of new trust and belief

in the brand within the retail sector is well under way and is showing

positive effects.

The first truly new collection was launched in March 2005. With around

89 items, a very competitive price range and innovative styles, Mexx

Jewels is back on course. The collection contains bangles, bracelets,

creoles, earrings, necklaces, and rings, all of sterling silver.

The group’s typical attention to detail and the striving for uniqueness lead

once more to a collection that is great in general and surprisingly rich in

every single feature (e.g. the new closure of the necklaces was specially

designed for Mexx Jewels).

The Mexximal Effect.The Brand of Emotions.

In the business year 2005/2006, an outreach into new territories in

Europe is planned, albeit at a smaller pace as that of the Mexx Time

brand, thus giving the radical overhaul of the collection and the further

introduction of new styles more time to settle in before aggressively

expanding the distribution network.

Overcoming the retail’s unnerving experience with the previous

collections and business will continue to be a challenge that the group

needs to master with care and creative ideas. The belief in the brand and

its potential is unbroken and the objectives are clear and in sight – Mexx

Jewels will be a success.

Fashion Changes.Trends Ar

Ro

Love Stays.

ise.mances Begin.

“To love is to suffer. To avoid suffering one must not love. But then one suffers from not loving.”Woody Allen, film director

Trendy.Groovy.

“edc” is the young and trendy line of clothing within the world of Esprit

fashion – and following the sharply increased marketing efforts for this sub-

brand, a new conceptual collection of competitively priced costume jewelry

for girls and young women has been successfully tested and is currently

being institutionalized. The “edc” collection of jewelry accessories consists

of 30 styles being renewed every 8 weeks, mirroring the latest trends and

the cycles and design directions of the “edc” textile line. In order to

preserve the integrity of the Esprit jewel brand, “edc” is clearly

distinguished from it and is being presented only in trend-oriented retail

environments. After the test phase, a sensible expansion of this colorful

and exciting accessory line is planned.

The Concept of Speed.

Mighty.Fancy .

“Fashion is not something that exists in dresses only. Fashion is in the sky, in the street, fashionhas to do with ideas, the way we live, what is happening.” Coco Chanel, designer

The New Target Group.When it comes to jewelry, men are all but unchartered territory. What is needed

to even start thinking of succeeding in this area is a brand that is absolutely

accepted as masculine, a new approach to design and material, and the

marketing know-how of industry experts. Carrera steel is not only an example of

how to do it but also a symbol of a freely flowing and intelligently tapped group

synergy. Launched in 2004 on the Basel fair, the trendy line quickly sold out in

its first markets, Germany, Italy, the Netherlands and Turkey. Carrera steel clearly

succeeds in connecting with a target group that is as difficult in its taste and

behavior as it is potentially rewarding when treated right. And Carrera steel,

drawing from the experience of the watch brand as much as from the Group’s

jewelry know-how and its distribution network, scored a perfect “strike”. The

collection will be further extended and qualified expansion into new markets is

in the pipeline as well.

State-ofState-of-the-Art.

The Group has sensibly identified its most promising brands and

segments for this complex and challenging market and is pursuing a

gradual strategy of qualified initiatives and organic growth – a more

considerate approach founded in the belief that such an enormous and

diversified territory deserves a respectful and opportunity-driven business

style.

Jackie G. – Simply Stylish: A perfect collection for consumers who want

up-to-date designs. This expressive range of fine diamond jewelry by

award winning designer Jacquelin Samuels was recently launched and

will soon be available at high-end retailers in North America and the

Caribbean. Its innovative and playfully fashion-minded positioning has

earned it instant affection and an almost assured future success.

Jacquelin – Classic yet sometimes surprising: The signature line of

Jacquelin Samuels who is known for classic, yet most of the times still

unexpectedly forward designs – and the Tango collection is no exception.

These simply beautiful contemporary earrings are handcrafted in 18-ct.

white or yellow gold by the most experienced artisans. The distribution of

this exclusive concept is naturally limited to only high-end retail

environments in North America.

Kazto – Everyday Elegance: Kazto is a name synonymous with feminine,

The United States of America.The Unique American Brands of EganaGoldpfeil.

diamond- and sapphire-studded designs. The subtle beauty of these

delicate creations makes Kazto the perfect accessory for any occasion,

available either in 18-ct. gold or platinum. Kazto continues to be a major

player in the diamond fashion market with the introduction of timeless

and yet imaginative styles.

The Mini’s by jackie g. – Express Yourself! The Mini’s collection is a

modern and fancy re-interpretation of diamond jewelry. Mini’s are perfect

for consumers who want designer pieces that are fun, stylish and

affordable. Positioned as a more democratic designer brand that has

broad consumer appeal and thus aiming for a suitably wider distribution

network, the Mini’s promise maximum results.

True™ – A lifetime of love™: True is a uniquely designed bridal collection

tailored in 18-ct. gold and platinum. True features as a signature style an

interlocking engagement ring and wedding band that symbolizes the

lifetime union of love. With perfectly blending comfort, distinctive looks

and superior craftsmanship, True is perfect for today’s discerning bride

and available only at truly high-end retailers throughout North America.

The acquisition of the high-end manufacture Abel & Zimmermann with

an albeit limited but healthy presence in the market has helped in making

additional steps, especially after initiating intelligent partnerships with

our American brands.

St

-Mind.

ately.“Fashions fade, style is eternal.” Yves-Saint Laurent, designer

T H E G L O W .T H E D E P T H .

“Living dreams …” is the claim of the latest communication campaign

presented by Yamato in February, 2005. While pearls are part of an

eternal dream about perfect beauty and nature’s gifts, the pearl business

really is – due to its focus on basically one product and the ever-faster

changes in fashion – still a quite seasonal one.

Yamato thus did not achieve any growth in the past business year – but

the restructuring of the sales organization and an overhaul of the

collection means that the groundwork for future growth has been laid.

The complex challenge of further promoting its core brand value – pearls

– while creating designs and styles that do not completely rely upon

them, is proving tough but potentially rewarding if mastered well.

The “Living dreams …” campaign is not only about advertising but rather

deals with a new concept of pearl jewelry that is modern, young and

makes the traditional product more accessible to younger generations.

Immediate sales increases following the introduction of the new concept

prove that Yamato is making steps into the right direction.

The Nature of Beauty.The Natural Choice.

Additional staff at the Group’s Competence Center – specially trained on

the subject of pearls – is now providing an improved service experience

to Yamato–s clients, who have responded very well to this proof of

commitment and care.

The new and more fashion-minded styles – e.g. ready-made pearl

necklaces with precious colored stones – are a direct answer to the

market requirements and have been very well received, a substantial

sales plus was experienced at the Group’s fair in June, 2005. Building

on this new momentum, Yamato will further expand its product range

(rings, earrings, pendants, bracelets) and will continue to focus on

design and marketing in order to maintain the new growth energy.

T H E

“Pearls mean tears.” Doris Lessing, author

T H E O R G A N I C .FA S C I N AT I O N .

DIRECTORSExecutive Directors

Hans-Joerg SEEBERGER(Chairman and Chief Executive)Peter Ka Yue LEEMichael Richard POIXHo Yin CHIKDavid Wai Kwong WONGShunji SAEKIMichael BOMMERS

Independent Non-Executive DirectorsCharles Cho Chiu SINEduardo Tang Lung LAUProfessor Zhengfu WANGAndy Yick Man NG

SECRETARYDavid Wai Kwong WONG

AUDITORSBaker Tilly Hong Kong Limited

PRINCIPAL BANKERSDresdner Bank AGStandard Chartered Bank Heller Bank AGSEB AGThe HongKong and Shanghai Banking Corporation LimitedCitic Ka Wah Bank LimitedWing Hang Bank, Ltd.

REGISTERED OFFICEP.O. Box 1787, 2nd Floor, One Capital Place, George Town Grand Cayman, Cayman Islands, British West Indies

PRINCIPAL OFFICESHong KongBlock C6, 12th Floor, Hong Kong Industrial Centre489-491 Castle Peak Road, Cheung Sha WanKowloon, Hong KongTel: (852) 2741 2008Fax: (852) 2742 2006E-mail: [email protected]

EuropeKaiserstrasse 39-49D-63065 Offenbach/Main, GermanyTel: (49) 69 8050 0Fax: (49) 69 8050 1600E-mail: [email protected]

HONG KONG SHARE REGISTRARS & TRANSFEROFFICESecretaries LimitedG/F., Bank of East Asia Harbour View Centre 56 Gloucester Road, Wanchai, Hong Kong

LISTINGThe Stock Exchange of Hong Kong LimitedStock Code: 926

WEBSITEhttp://www.egana.comhttp://www.quamnet.com

Corporate Information

TTHE SUCCESS.THE GR

Financial Highlights

HE PRESENT.OUP.

THE FUTURE.

Revenue By Geographical LocationsYear ended 31st May, 2005

Shareholders’ Funds

31st May 2003

America Asia Europe

0

100,000

456,599

8.93

14.63

76.44

511,597

659,924

1,313,342

1,102,622

831,111

180,000

260,000

340,000

420,000

500,000

580,000

660,000

(HK$’000)

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

(HK’000)

0

20

40

60

80

100

%

31st May 2004

31st May 2005

Operating Profit

31st May 2003

0

20,000

76,92685,927

94,409

40,000

60,000

80,000

100,000

(HK$’000)

31st May 2004

31st May 2005

31st May 2003

31st May 2004

31st May 2005

Total Assets for Generating Group’s Earnings

ASIA

ChinaCalibre Jewellery (Shenzhen) Co. Ltd.Block 2, Shang Qi Sha Tong Fu Industrial EstateNan Nong VillageNan Ao, Longgang District Shenzhen, ChinaTel: (86) 755 8440 0448Fax: (86) 755 8440 4488

Nan Ao Speidel Factory (manufacturing processing unit)Shui Tau Sha VillageNan Ao, Longgang DistrictShenzhen, ChinaTel: (86) 755 8440 0740Fax: (86) 755 8440 0739

Hong KongOro Design LimitedBlock C6, 12th FloorHong Kong Industrial Centre489-491 Castle Peak RoadCheung Sha Wan, KowloonHong Kong Tel: (852) 2741 2008Fax: (852) 2742 2006

ThailandKeimothai Limited4/4-7 Ratchadapisek Road WatthapraBangkokyai Bangkok 10600ThailandTel: (662) 457 0122Fax: (662) 457 8148

Group’s Main Offices

EUROPE

AustriaEgana Juwelen & Perlen Handels GmbHHauffgasse 3-5/2 0G1110 WienAustriaTel: (43) 1 715 44770Fax: (43) 1 715 447790

The NetherlandsEganaGoldpfeil Benelux Jewel B.V.Zernikelaan 8NL-9351 Va LeekThe NetherlandsTel: (31) 594 587 100Fax: (31) 594 587 101

GermanyEgana Schmuck und Perlen GmbHKaiserstrasse 39-49D-63065 Offenbach/MainGermanyTel: (49) 69 8050 0Fax: (49) 69 8050 1600

European Technology & Logistic Center GmbHWaldstrasse 41D-63128 DietzenbachGermanyTel: (49) 6074 2112 500Fax: (49) 6074 2112 530

Guthmann + Wittenauer Schmuck GmbHGymnasiumstrasse 7975175 PforzheimGermanyTel: (49) 7231 37 99 0Fax: (49) 7231 37 99 88

Abel & Zimmermann GmbH & Co KGGymnasiumstrasse 7975175 PforzheimGermanyTel: (49) 7231 26 02 6Fax: (49) 7231 26 80 0

NORTH AMERICA

USAEgana Jewelry & Pearls (America) Corp.Jacquelin Designs Enterprises, Inc.4951 Airport ParkwaySuite 803 DallasTexas 75001, USATel: (1) 972 490 0101Fax: (1) 972 490 5912

Financial Contents

Report of the Directors 43Corporate Governance Report 61Report of the Auditors 70Consolidated Profit and 71

Loss AccountConsolidated Balance Sheet 72Balance Sheet 74Consolidated Statement of 75

Changes in EquityConsolidated Cash 76

Flow StatementNotes to the Accounts 78Financial Summary 127

REPORT OF THE DIRECTORS

43

The Directors have the pleasure to submit their report together with the audited accounts of Egana Jewellery& Pearls Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) forthe year ended 31st May, 2005.

ULTIMATE HOLDING COMPANYThe Directors consider EganaGoldpfeil (Holdings) Limited (“EganaGoldpfeil”), a limited company incorporatedin the Cayman Islands and whose shares are listed on The Stock Exchange of Hong Kong Limited (the “StockExchange”), to be the ultimate holding company.

PRINCIPAL ACTIVITIES AND GEOGRAPHICAL ANALYSIS OF OPERATIONSThe Company is an investment holding company. Its subsidiaries are principally engaged in the (i) design,manufacturing, distribution and trading of jewellery products, (ii) licensing or assignment of brandnames tothird parties for the design, manufacturing and/or distribution of jewellery and consumer products other thantimepieces and (iii) holding of investments.

An analysis of the Group’s turnover and segment information for the year by business and geographicalsegments is set out in Note 3 to the accounts.

RESULTS AND APPROPRIATIONSThe results of the Group for the year are set out in the consolidated profit and loss account on page 71.

The Directors have declared an interim dividend of HK5.50 cents (2004: HK5.50 cents) per share, totalingapproximately HK$22,724,000 (2004: HK$17,300,000), which was fully paid on 30th March, 2005.

The Directors recommend the payment of a final dividend of HK1.85 cents (2004: HK4.00 cents) per shareto shareholders whose names appear on the register of members of the Company on 16th November, 2005,totaling approximately HK$7,897,000 (2004: HK$13,272,000). Together with the interim dividend, totaldividends for the year ended 31st May, 2005 amounted to approximately HK$30,621,000 (2004:HK$30,572,000).

FINANCIAL REVIEWThe Group’s annual revenue reached HK$851 million, in line with the first half year revenue of HK$421million. We have successfully introduced more branded products in place of the bought-in-finished goodsthat there revealed a 10% upsurge in the branded sales in FY 04/05 as compared to FY 03/04’s. As such, thebought-in-finished goods which employed a lower profit margin than branded products, reduced by 15% invalue. This has the advantage of saving the logistics and delivering cost for enriching the Group’s operatingmargin.

The Group will continue to increase its focus on branded sales and market extension.

With better product mixture, and production efficiency, the gross margin increased from 38% in FY04 by4.5% to 42.5% in FY05.


44

FINANCIAL REVIEW (Cont’d)The distribution costs in FY05 were in line with those in FY04, at HK$158 million and HK$153 millionrespectively - thanks to the Group’s defined communication and promotion strategies as well as the salesadministration model which are proven to bring positive effect to the Group’s branding, marketing and salesactivities.

The administration expenses remained intact at HK$153 million for both FY05 and FY04 due to the ongoingreview and control of the Group’s operational structure and corporate overhead. This is believed essential inthis highly cost-competitive economy.

The operating profit margin reached 11%, as compared to 8.8% in FY04, reflecting the continuous improvementin logistic efficiency in our European Technology & Logistic Center in Germany and the gross marginenhancement.

Our revenue and assets were denominated in Euro and Swiss Francs 74%; US$ and HK$ 24% and others2%. Payments and liabilities were in Euro and Swiss Francs 36%; US$ and HK$ 59% and others 5%.

The Group practices natural hedging to the extent possible and currency hedging as far as is reasonablypracticable. Hence, the foreign currency exposure against adverse exchange movements has been adequatelycontained.

Distributable earnings attributable to shareholders was HK$74.5 million, a 9% increment over FY04’s, showinga net margin of 8.8% up from 7% in FY04 by 1.8%.

As a result, this translated into a positive operating cash inflow to the Group, with an increase in cash andcash equivalents of HK$218 million, reaching HK$418 million as of 31st May, 2005.

The shareholders’ funds amounted to HK$660 million, showing a continuous double digit growth (29%).

Working capital was HK$497 million and the current ratio stood at 2x (as compared to industry average of1x). This provides a valid base for the Group to plan its financial resources in a more cost-effective manner,and with higher certainty in securing funds to cope with the business expansion.

The debtor turnover was at 80 days (well ahead of the industry norm of 120 days), and the inventory turnoverwas at 178 days (again compared favorably with the market average of 210 days). These are attributable tothe Group’s tight credit control policy and ongoing inventory control measures.

Due to the Group’s commitment to sound financial model (of applying medium term funds and equity-linkedresources for capital investment with debts for working capital), the gearing ratio (interest bearing debt toshareholders’ funds) was maintained at 0.67x, in line with FY04’s, which is well within the industry yardstickof 1 time.


45

FINANCIAL REVIEW (Cont’d)The leverage (Net debt to EBITDA) was at 0.38x, demonstrating the Group’s sound financial position toleverage its borrowings in an optimal manner, which sets a firm base preparing for its business growth andcapital investment going forward.

Total assets increased by 19% to exceed HK$1,313 million in FY05. This is yet to include the value of thebrand portfolio of the Group which is reckoned to be in the range of HK$1 billion — a valuable off-balancesheet asset of the Group.

Currently, the confirmed orders on hand covering 6-month worth of shipments are at a higher level than lastyear.

The Group had no significant capital commitment as at 31st May, 2005. There are no material contingentliabilities or off balance sheet obligations other than trade bills discounted in the ordinary course of businessas reflected in the accounts.

FINANCING ACTIVITIES

Convertible Bonds ActivitiesOn 4th February, 2005, The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) granted thelisting approval to the Company for issue of Tranche 3a Bonds of up to US$5,000,000 to Merrill Lynch. Asat 31st May, 2005, Merrill Lynch has fully exercised its conversion rights to convert the Tranche 3a Bondsinto shares of the Company (the “Shares”).

On 9th August, 2005, the Stock Exchange granted the listing approval to the Company for the issue ofTranche 4a Bonds of up to US$5,000,000 to Merrill Lynch. As at 14th September, 2005 (the date of thisAnnual Report), Merrill Lynch has exercised its conversion rights to convert US$2,000,000 Tranche 4aBonds into Shares. The outstanding US$3,000,000 Tranche 4a Bonds will be expiring on 31st March,2009.

RESERVESMovements in the reserves of the Group and the Company during the year are set out in Note 29 to the accounts.

Under the Companies Law of the Cayman Islands, share premium of the Company is available for distributionsor payments of dividends to shareholders subject to the provisions of its Memorandum and Articles of Associationand provided that immediately following the distribution or payment of dividend the Company is able to payits debts as they fall due in the ordinary course of business. In accordance with the Company’s Articles ofAssociation, no dividend shall be paid other than out of retained profits of the Company or the amount heldin any share premium account. As at 31st May, 2005, the Company’s share premium amounted to approximatelyHK$96,724,000 (2004: HK$39,295,000) while its retained profits amounted to approximatelyHK$23,509,000 (2004: HK$16,448,000).


46

DONATIONSCharitable and other donations made by the Group during the year amounted to approximately HK$257,000 (2004:HK$22,570).

FIXED ASSETSDetails of the movements in fixed assets of the Group are set out in Note 13 to the accounts.

SHARE CAPITALDetails of the movements in share capital of the Company are set out in Note 28 to the accounts.

CONVERTIBLE BONDSDetails of the terms of the convertible bonds are set out in Note 26 to the accounts.

PRE-EMPTIVE RIGHTSThere is no provision for pre-emptive rights under the Memorandum and Articles of Association of the Companyand the Companies Law of the Cayman Islands.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIESDuring the year, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of theCompany’s listed securities.

BANK BORROWINGSParticulars of bank borrowings as at 31st May, 2005 are set out in Notes 24 and 25(a) to the accounts. Therewas no interest capitalised by the Group during the year.

SUBSIDIARIES AND AN ASSOCIATED COMPANYParticulars of the Company’s subsidiaries and associated company at 31st May, 2005 are set out in Notes 15and 16 to the accounts respectively.


47

SHARE OPTION SCHEMEShare options are granted to the Directors, executives and employees under the Executive Share OptionScheme of the Company (the “Scheme”) adopted on 26th June, 1998 and became unconditional on 23rdJuly, 1998. Details of the Scheme are as follows:

1. Purpose of the Scheme As incentive to executive management and employees.

2. Participants of the Scheme Eligible full-time employees including the Executive Directors of theCompany and its subsidiaries.

3. Total number of Shares 12,875,000 Shares, representing approximately 3.02% of the issuedavailable for issue under the share capital of the Company as at the date of this Annual Report.Scheme and the percentageof issued share capital at14th September, 2005

4. Maximum entitlement of each 25% of the aggregate number of Shares issued and issuable underparticipant under the Scheme the Scheme.

5. The period within which Within a maximum period of 10 years commencing from the date ofShares must be taken up grant of such options and ending on the date of expiry of the Scheme.under an option

6. The minimum period for Year 1: up to 20% of Shares comprised in the options at theirwhich an option must be dates of grant (or if applicable as subsequently adjustedheld before it can be exercised in accordance with the Scheme);and the percentage of theShares comprising the options Year 2: up to 40% of Shares so comprised, less the percentagethat can be exercised during of shares in respect of which the options were exercisedthe period in Year 1;

Year 3: up to 60% of Shares so comprised, less the percentageof shares in respect of which the options were exercisedin Years 1 and 2;

Year 4: up to 80% of Shares so comprised, less the percentageof shares in respect of which the options were exercisedin Years 1, 2 and 3; and

Year 5: all shares so comprised in respect of which the optionsto 10 were not previously exercised.(inclusive)


48

SHARE OPTION SCHEME (Cont’d)7. The amount payable on Nominal amount of HK$1.00 upon acceptance of the options.

acceptance of the options

8. The basis of determining The exercise price is the higher of:the exercise price (a) 85% of the average of closing prices of shares on the

Stock Exchange of five business days immediatelypreceding the date of offer to grant the options; and

(b) the nominal value thereof.

9. The remaining life of the The Scheme will expire on 23rd July, 2008.Scheme

On 1st September, 2001, amendments to Chapter 17 of the Rules Governing the Listing of Securities on theStock Exchange (the “Listing Rules”) on share option schemes came into effect. If the Company wishes tocontinue to grant options under the Scheme on or after 1st September, 2001, it must also comply with thenew requirements set out in the Listing Rules. However, all options granted prior to the coming into effect ofthe said amendments will remain in full force and effect.

The following shows the particulars of the share options of the Company granted to the Directors, executivesand employees of the Group that are required to be disclosed pursuant to Rule 17.07 of Chapter 17 and sub-paragraph 13(1) of Appendix 16 of the Listing Rules during the year:

Number Numberof Shares of Shares

comprising comprisingthe options the optionsoutstanding outstanding

at the beginning Number of at the end Date SubscriptionDirectors of the year options lapsed of the year granted price per share

HK$

Hans-Joerg SEEBERGER 3,300,000 — 3,300,000 09/01/2000 2.24

Peter Ka Yue LEE 250,000 — 250,000 09/01/2000 2.24

Michael Richard POIX 250,000 — 250,000 17/01/2000 2.24

Hartmut VAN DER STRAETEN 250,000 250,000 — 12/01/2000 2.24(note ii) (note ii)

Employees under continuous 9,075,000 — 9,075,000 07/01/2000 2.24contracts (excluding Directors) to 31/01/2000

13,125,000 250,000 12,875,000


49

SHARE OPTION SCHEME (Cont’d)Notes:

i. The outstanding options can be exercised in accordance with the Scheme at any time after the date upon which theoptions are granted but not later than 10 years from the date on which the Scheme was adopted, provided that upto 20%, 40%, 60% and 80% of the original number of shares comprising the options can be exercised in the 1st,2nd, 3rd and 4th year from the date granted, respectively.

ii. Mr. Hartmut VAN DER STRAETEN ceased to be a Director of the Company on 18th November, 2004 and the250,000 options granted to him were lapsed on the same day.

No options were granted, exercised or cancelled during the year.

Save as disclosed above, no right to subscribe for the securities of the Company or its associated corporationwithin the meaning of the Securities and Futures Ordinance (the “SFO”), has been granted by the Companyto, nor have any such rights been exercised by, any person during the year.


50

DIRECTORSThe Directors who held office during the year and up to the date of this report were as follows:

Executive DirectorsHans-Joerg SEEBERGER (Chairman and Chief Executive)Peter Ka Yue LEEMichael Richard POIXHo Yin CHIKDavid Wai Kwong WONG (re-designated from a Non-Executive Director to

an Executive Director on 4th January, 2005)Shunji SAEKIHartmut VAN DER STRAETEN (resigned on 18th November, 2004)Michael BOMMERS

Independent Non-Executive DirectorsCharles Cho Chiu SINEduardo Tang Lung LAUProfessor Zhengfu WANGAndy Yick Man NG (appointed on 13th July, 2005)

In accordance with Article 99 of the Company’s Articles of Association, Mr. Andy Yick Man NG shall holdoffice until the forthcoming annual general meeting of the Company, and being eligible, offer himself for re-election.

In accordance with Article 116 of the Company’s Articles of Association, Mr. Peter Ka Yue LEE, Mr. MichaelRichard POIX and Mr. David Wai Kwong WONG will retire by rotation and, being eligible, offer themselves forre-election at the forthcoming annual general meeting of the Company.

The Company has received the confirmation of independence in respect of the year ended 31st May, 2005from each of the Independent Non-Executive Directors pursuant to Rule 3.13 of the Listing Rules. As at thedate of this report, the Company still considers all Independent Non-Executive Directors to be independent.

DIRECTORS’ SERVICE CONTRACTSMr. Hans-Joerg SEEBERGER previously entered into a service agreement with the Company which was expiredand has been extended until 31st December, 2007.

Mr. Peter Ka Yue LEE previously entered into service agreements with the Company which was expired and hasbeen extended until 31st December, 2007.

Mr. Michael Richard POIX previously entered into a service agreement with the Company which was expiredand has been extended until 31st December, 2007.


51

DIRECTORS’ SERVICE CONTRACTS (Cont’d)Mr. Ho Yin CHIK has entered into a service agreement with the Company for a term of three years commencing1st June, 2005 until 31st May, 2008.

Mr. David Wai Kwong WONG has entered into a service agreement with the Company for a term of three yearscommencing 1st January, 2005 until 31st December, 2007.

Mr. Shunji SAEKI entered into a service agreement with the Company and shall continue thereafter unlessand until the agreement is terminated.

Mr. Michael BOMMERS entered into a consultancy agreement with the Company and shall continue thereafterunless and until the agreement is terminated.

Save as disclosed above, none of the Directors has an service contract for a duration exceeds three years orhas an service contract which can be terminated by giving a period of notice of more than one year or to paycompensation or make other payment equivalent to more than one years’ emoluments.

DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCENo contracts of significance to which the Company or any of its subsidiaries was a party and in which theDirector had a material interest, whether directly or indirectly, existed at the end of the year or at any timeduring the year.

BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT

Executive DirectorsHans-Joerg SEEBERGER (“Mr. Seeberger”), aged 62, is the founder of the Group, Chairman and ChiefExecutive of the Company. He is also the Chairman and Chief Executive of EganaGoldpfeil (hereinaftercollectively referred to as the “EganaGoldpfeil Group”) and has more than 24 years’ experience in the timepiece,jewellery and leather business in Asia and Europe. He is responsible for the Group’s overall corporate policyand development strategy as well as overseeing the Group’s operations worldwide, particularly the financialand marketing aspects.


52

BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT (Cont’d)

Executive Directors (Cont’d)Peter Ka Yue LEE (“Mr. Lee”), aged 58, joined the EganaGoldpfeil Group in 1978 and has been an ExecutiveDirector of the Company since May 1997. Mr. Lee also serves as an Executive Director of EganaGoldpfeil. Heis responsible for the financial and general management of the Group’s Hong Kong operations. Before joiningthe EganaGoldpfeil Group, he worked as an executive in marketing and corporate management in severalinternational companies in the consumer and manufacturing industries. Mr. Lee is also an Executive Directorof Tonic Industries Holdings Limited and a director of The Hong Kong Watch Manufacturers AssociationLimited. Recently, Mr. Lee was awarded with the Honorary Associate from the Hong Kong Baptist Universityin recognition of his contribution to the community.

Mr. Michael Richard POIX (“Mr. Poix”), aged 53, joined the EganaGoldpfeil Group in October 1988 and hasbeen an Executive Director of the Company since May 1997. Mr. Poix also serves as an Executive Director ofEganaGoldpfeil. He is responsible for the day-to-day operations of the EganaGoldpfeil Group’s business andensuring compliance with the EganaGoldpfeil Group’s obligations under its brandname Licences. Mr. Poixpreviously worked with a large German mail order house, a large German department store organisation as aforeign trader in their trade departments and a retail company in Germany as the head of the purchasingdepartment for watches, jewellery and electronics.

Ho Yin CHIK (“Mr. Chik”), aged 50, joined the EganaGoldpfeil Group in 1985 and has been an ExecutiveDirector of the Company since November 2003. He is also an Executive Director of EganaGoldpfeil. Mr. Chikis the Group Treasurer and is responsible for the financial and treasury operations of the Group. He has over21 years’ experience in auditing, financial and treasury fields. He is a fellow member of the Association ofChartered Certified Accountants and a Certified Public Accountant. Mr. Chik also holds a Degree of Bachelorof Commerce from the University of Southern Queensland.

Mr. David Wai Kwong WONG (“Mr. Wong”), aged 47, was re-designated from a Non-Executive Director to anExecutive Director of the Company with effect from 4th January, 2005. Mr. Wong also serves as an ExecutiveDirector of EganaGoldpfeil and Incutech Investments Limited. He has over 25 years’ experience in finance,accounting, corporate and taxation affairs. He is a fellow member of the Association of Chartered CertifiedAccountants and a Certified Public Accountant. Recently, Mr. Wong was awarded with the Honorary Associatefrom the Hong Kong Baptist University in recognition of his contribution to the community. Prior to the re-designation, Mr. Wong has been a Non-Executive Director of the Company since November 1997. Mr. Wongis currently a Non-Executive Director of Tonic Industries Holdings Limited and an Independent Non-ExecutiveDirector of seven other listed companies in Hong Kong namely Cardlink Technology Group Limited, TheCross-Harbour (Holdings) Limited, Qualipak International Holdings Limited, UBA Investments Limited, UpbestGroup Limited, Y. T. Realty Group Limited and Yugang International Limited.


53


Executive Directors (Cont’d)Shunji SAEKI, aged 55, has been with the EganaGoldpfeil Group for more than 27 years and is responsiblefor overall sales, marketing and brand control in Asia and the Pacific Region. He graduated from KasselUniversity in Germany with a diploma in industrial design and has extensive experience in sourcing pearls.

Michael BOMMERS, aged 50, joined the EganaGoldpfeil Group in 1994 and has been an Executive Directorof the Company since December 1997. He is responsible for overseeing the financial reporting functions, thedevelopment of the Group’s activities in Europe and was involved in the merging and restructuring of theEuropean operations of the EganaGoldpfeil Group. He is currently the Managing Director of EganaGoldpfeilEurope (Holdings) GmbH, a wholly-owned subsidiary of EganaGoldpfeil. Prior to joining the EganaGoldpfeilGroup, he worked in the corporate finance division of West Merchant Bank in Germany and was involved inadvising the EganaGoldpfeil Group on the acquisition of Egana Deutschland GmbH, a company engaged inthe distribution of timepieces and jewellery prior to its corporate reorganisation.

Independent Non-Executive DirectorsCharles Cho Chiu SIN, OBE (“Mr. Sin”), aged 69, has been an Independent Non-Executive Director of theCompany since November 1997. He is a non-executive director of Tian Teck Land Limited and AssociatedInternational Hotels Limited. He is a solicitor and notary public and holds a Master of Arts degree from theUniversity of Cambridge. Mr. Sin was the Chairman of the Kam Ngan Stock Exchange from 1985 to 1986 andthe Stock Exchange from 1987 to 1988. He was a former Chairman of the Home Ownership Scheme Committeeand the Management Committee of the Hong Kong Housing Authority. He was also a former member of theUrban Council and the Hong Kong Housing Authority.

Eduardo Tang Lung LAU (“Mr. Lau”), aged 48, has been an Independent Non-Executive Director of theCompany since March 2000. He has over 24 years’ experience in the footwear business and consumerbusiness for the US market. He has demonstrated a fine record in the growing retail and brand name productsin Hong Kong and he is well connected in the industry. Mr. Lau is also a director and shareholder of threeprivate companies in Hong Kong.

Professor Zhengfu WANG (“Professor Wang”), aged 53, joined the Group in 1997 as a consultant and isresponsible for overseeing and advising on the Group’s strategic and business development in the People’sRepublic of China. He became an Independent Non-Executive Director of the Company in September 2000.Prior to joining the Group, he was involved in the corporate restructuring of certain state-owned enterprisesand advising Chinese-foreign joint ventures. Professor Wang holds a Bachelor degree in Economics and hadfurther study in Europe. He is well conversant with international business and economics.


54


Independent Non-Executive Directors (Cont’d)Mr. Andy Yick Man NG (“Mr. Ng”), aged 48, was appointed as an Independent Non-Executive Director of theCompany on 13th July, 2005. Mr. Ng also serves as an Independent Non-Executive Director of EganaGoldpfeiland Incutech Investments Limited. He has over 23 years’ experience in the fields of finance, accounting,taxation and corporate governance. He is currently Teaching Fellow of the Faculty of Business Administrationof The Chinese University of Hong Kong and is a fellow member of The Hong Kong Institute of CertifiedPublic Accountants, The Taxation Institute of Hong Kong and CPA Australia.

Biographical details of senior management of the Group are set out in Senior Executive Management section onpage 6.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SHARES ANDUNDERLYING SHARES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONAs at 31st May, 2005, the interests and short positions of the Directors and chief executive in the shares andunderlying shares of the Company and its associated corporation (within the meaning of Part XV of the SFO),as recorded in the register maintained by the Company under section 352 of the SFO or as notified to theCompany were as follows:

The CompanyTotal Interests

Total (includingInterests Underlying underlyingas % of shares shares) as %

Personal Family Corporate Other Total the issued (share of the issuedInterests Interests Interests Interests Interests share capital options) share capital

Number of shares of HK$0.50each in the Company

Hans-Joerg SEEBERGER — — — 247,166,099 247,166,099 59.82% 3,300,000 60.62%(Note i) (Note iii)

Peter Ka Yue LEE 73,651 — 1,114,838 — 1,188,489 0.29% 250,000 0.35%(Note ii) (Note iii)

Michael Richard POIX 373,398 — — — 373,398 0.09% 250,000 0.15%(Note iii)

Ho Yin CHIK 2,160 — — — 2,160 0% — 0%


55

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SHARES ANDUNDERLYING SHARES OF THE COMPANY AND ITS ASSOCIATED CORPORATION (Cont’d)

The Company (Cont’d)Notes:

i. 1,044,955 shares were registered in the name of Peninsula International Limited and its nominee which held thesame as nominee for the Captive Insurance Trust, a discretionary trust whose prospective beneficiaries included Mr.Hans-Joerg SEEBERGER and his family. 246,121,144 shares were registered in the name of EganaGoldpfeil and itsnominee. By virtue of his interest in EganaGoldpfeil and the Captive Insurance Trust under the SFO, Mr. Hans-JoergSEEBERGER was deemed to be interested in these shares.

ii. These shares were beneficially owned by Joshua Limited, a company which was wholly and beneficially owned byMr. Peter Ka Yue LEE.

iii. The options, exercisable at HK$2.24 per share, were granted pursuant to the Company's Executive Share OptionScheme.

Associated Corporation

EganaGoldpfeilTotal Interests

Total (includingInterests Underlying underlyingas % of shares shares) as %

Personal Family Corporate Other Total the issued (share of the issuedInterests Interests Interests Interests Interests share capital options) share capital

Number of shares of HK$1.00each in EganaGoldpfeil

Hans-Joerg SEEBERGER — — — 478,620,553 478,620,553 37.65% 12,000,000 38.59%(Note i) (Note iii)

Peter Ka Yue LEE 530,291 — 8,191,773 — 8,722,064 0.69% 500,000 0.73%(Note ii) (Note iii)

Michael Richard POIX 2,884,666 — — — 2,884,666 0.23% 500,000 0.27%(Note iii)

Ho Yin CHIK 18,464 — — — 18,464 0% 144,800 0.01%(Note iv)

Shunji SAEKI 53,000 8,640 — — 61,640 0% 179,000 0.02%(Note v)


56

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SHARES ANDUNDERLYING SHARES OF THE COMPANY AND ITS ASSOCIATED CORPORATION (Cont’d)

Associated Corporation (Cont’d)

EganaGoldpfeil (Cont’d)Notes:

i. These shares were registered in the name of Peninsula International Limited and its nominee which held the sameas nominee for the Captive Insurance Trust, a discretionary trust whose prospective beneficiaries included Mr.Hans-Joerg SEEBERGER and his family.

ii. These shares were beneficially owned by Joshua Limited, a company which was wholly and beneficially owned by Mr.Peter Ka Yue LEE.

iii. The options, exercisable at HK$2.11 per share, were granted pursuant to EganaGoldpfeil’s Executive Share OptionScheme.

iv. The options, exercisable at HK$3.45 per share, were granted pursuant to EganaGoldpfeil’s Executive Share OptionScheme.

v. 99,000 and 80,000 options, exercisable at HK$1.28 and HK$2.11 per share respectively, were granted pursuantto EganaGoldpfeil’s Executive Share Option Scheme.

Certain Directors held nominee shares in subsidiaries in trust for the Company or its subsidiaries as at 31stMay, 2005.

Save as disclosed above, as at 31st May, 2005, none of the Directors or Chief Executive of the Company hadany interests or short positions in the shares, underlying shares or debentures of the Company or its associatedcorporation within the meaning of Part XV of the SFO which were required to be notified to the Stock Exchangeand the Company pursuant to Part XV of the SFO or pursuant to the Model Code for Securities Transactionsby Directors of Listed Companies (the “Model Code”) or which are required to be entered in the register undersection 352 of the SFO.

MANAGEMENT CONTRACTSNo contracts concerning the management and administration of the whole or any substantial part of thebusiness of the Company were entered into or existed during the year.


57

INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS OTHER THAN THE DIRECTORSAND CHIEF EXECUTIVE OF THE COMPANYAs at 31st May, 2005, the following persons, other than the Directors and Chief Executive of the Company, heldinterests in the shares or underlying shares of the Company as recorded in the register maintained by theCompany under section 336 of the SFO:

Total InterestsUnderlying (including

Total Shares underlyingInterests as % (including shares) as %

Corporate Total of issued convertible of the issuedInterests Interests share capital bonds) share capital

Number of shares of HK$0.50 eachin the Company

Glorious Concept Limited (Note i) 67,121,600 67,121,600 16.25% — 16.25%Eco-Haru Mfr. Holdings Limited (Note i) 67,121,600 67,121,600 16.25% — 16.25%EganaGoldpfeil (Note ii) 246,121,144 246,121,144 59.57% — 59.57%Merrill Lynch & Co Inc (Note iii) 8,794,583 8,794,583 2.13% 9,067,270 4.32%

Notes:

i. Glorious Concept Limited is a wholly-owned subsidiary of Eco-Haru Mfr. Holdings Limited, which in return iswholly-owned by EganaGoldpfeil.

ii. The interest includes 178,999,544 and 67,121,600 shares held by EganaGoldpfeil and Glorious Concept Limitedrespectively.

iii. These shares were beneficially held by Merrill Lynch & Co Inc.

iv. All the interests stated above represent long positions.

Save as disclosed above, as at 31st May, 2005, the Company had not been notified by any other person(other than the Directors and Chief Executive of the Company) who had interests or short positions in theshares or underlying shares of the Company which were required to be recorded in the register maintained bythe Company under section 336 of the SFO.

MAJOR CUSTOMERS AND SUPPLIERSDuring the year, the five largest customers in aggregate accounted for approximately 36% of the total sales ofthe Group and the largest customer accounted for approximately 14% of the total sales of the Group.

During the year, the five largest suppliers in aggregate accounted for approximately 45% of the total purchasesof the Group and the largest supplier accounted for approximately 13% of the total purchases of the Group.

At 31st May, 2005, none of the Directors, their associates, or any shareholders (which to the knowledge ofthe Directors owned more than 5% of the Company’s share capital) had a beneficial interest in the Group’sfive largest customers or suppliers.


58

EMPLOYEESAs at 31st May, 2005, the Group employed approximately 3,800 staff. Remuneration is determined byreference to the employees’ performance, qualifications, experiences and the prevailing market conditions.TheCompany has established discretionary bonuses, employee share option schemes to motivate and rewardemployees to achieve the Company’s business performance targets.

CONNECTED TRANSACTIONSDetails of the connected transactions for the year are set out in Note 35 to the accounts. The IndependentNon-Executive Directors of the Company have reviewed the connected transactions set out in Note 35(a) andconfirmed that these transactions were entered into:

1. in the ordinary and usual course of business of the Company;

2. either on normal commercial terms or, if there were not sufficient comparable transactions to judgewhether they were on normal commercial terms, on terms no less favourable to the Company than termsavailable to or from independent third parties as appropriate;

3. in accordance with the relevant agreements governing the connected transactions on terms that are fairand reasonable and in the interests of the shareholders of the Company as a whole; and

4. the aggregate values of the connected transactions during the periods up to the financial year ended31st May, 2005 have not exceeded the relevant annual cap. set by the Company.

The above connected transactions have been reviewed by the auditors of the Company who have confirmedthat during the year the above connected transactions were conducted in a manner which satisfies thefollowing conditions:

1. The connected transactions have been:

(i) approved by the Board of Directors;

(ii) entered into in accordance with the pricing policies as stated in the respective agreements; and

(iii) entered into in accordance with the relevant agreements governing the transactions.

2. The aggregate values of the connected transactions have not exceeded the relevant annual cap. set bythe Company.

Save as disclosed in Note 35 to the accounts, there were no other transactions which need to be disclosed asconnected transactions in accordance with the requirements of the Listing Rules.


59

CODE OF BEST PRACTICE AND CORPORATE GOVERNANCEExcept that the Independent Non-Executive Directors of the Company are not appointed for a specific termbut are subject to retirement by rotation and re-election at annual general meetings of the Company, theCompany was in compliance with the Code of Best Practice as set out in the old Appendix 14 of the ListingRules throughout the year.

In order to comply with the Code on Corporate Governance Practices, Appendix 14 of the Listing Rules, theCompany has adopted its own “Code on Corporate Governance” in July 2005. A detailed Corporate GovernanceReport was contained on pages 61 to 69 of this Annual Report.

AUDIT COMMITTEEThe Audit Committee, comprising three Independent Non-Executive Directors, has reviewed the Company’saudited annual financial results for the year ended 31st May, 2005, the accounting principles and practicesadopted by the Company, the effectiveness of the internal control system and discussed with managementregarding the external auditing as well as the internal control system review process.

Details of the Audit Committee Meetings held and the works done by Audit Committee during the year wascontained in the Corporate Governance Report.

REMUNERATION COMMITTEEThe Remuneration Committee, comprising four Independent Non-Executive Directors and an Executive Director,has reviewed, inter alias, the board policy for remuneration of the Chairman, Executive Directors, seniormanagement as well as the Group’s overall remuneration policy and basis of determination.

Details of the Remuneration Committee Meeting held and the works done by Remuneration Committee wascontained in the Corporate Governance Report.

MODEL CODEThe Company has adopted its own “Code for Securities Transactions by Directors” (“the Code of Conduct”)on terms no less exacting than the required standard set out in the Model Code (Appendix 10 of the ListingRules).

Confirmations have been obtained from all Directors to acknowledge compliance with the Model Code and theCode of Conduct throughout the year.

PUBLIC FLOATOn the basis of information that is publicly available to the Company and within the knowledge of theDirectors as at the date of this Annual Report, the Company has complied with the public float requirementsof the Listing Rules for the financial year ended 31st May, 2005.

DIRECTORS’ INTEREST IN COMPETING BUSINESSNone of the Directors has interests in any business which compete or are likely to compete, either directly orindirectly, with the business of the Company during the year ended 31st May, 2005 and up to the date of thisAnnual Report.

SUBSEQUENT EVENTDetails of significant subsequent event is set out in Note 36 to the accounts.


60

AUDITORSPricewaterhouseCoopers acted as auditors of the Company up to and including the year ended 31st May, 2003.PricewaterhouseCoopers resigned on 28th May, 2004 and the Directors appointed RSM Nelson Wheeler to fillthe casual vacancy. RSM Nelson Wheeler audited the Company’s accounts for the year ended 31st May 2004.RSM Nelson Wheeler resigned on 11th April, 2005 and the Directors appointed Baker Tilly Hong Kong Limitedto fill the casual vacancy. Baker Tilly Hong Kong Limited audited the Company’s accounts for the year ended31st May, 2005.

On behalf of the BoardEgana Jewellery & Pearls Limited

Hans-Joerg SEEBERGERChairman and Chief Executive


CORPORATE GOVERNANCE REPORT

61

The Group is committed to ensuring high standards of corporate governance so as to ensure “Accountability,Responsibility and Transparency” towards the shareholders, stakeholders, investors as well as the employeesof the Group.

Following the introduction of “Code on Corporate Governance Practices” by the Stock Exchange in January2005, the Group and EganaGoldpfeil have accordingly adopted their own Code on Corporate Governance(“the EganaGoldpfeil Code”) in July 2005. The principles in the EganaGoldpfeil Code have basically embracedthe principles and standards set out in the “Code on Corporate Governance Practices” issued by the StockExchange. The purpose of the EganaGoldpfeil Code is to set out standard principles and practices of goodcorporate governance for the Board as well as the teams to observe and follow for compliance with the Group’score value of “Caring, Integrity and Fairness” for furtherance of the business in a professional and sociallyresponsible manners thereby maximizing the shareholder's value and bringing contribution to the community.The EganaGoldpfeil Code is published in EganaGoldpfeil’s websites (www.egana.com and www.quamnet.com)so that our shareholders as well as the public are aware of the standards which they can expect from us andcan let us know whether these standards meet their expectations.

The Board will continue to monitor and upgrade the EganaGoldpfeil Code so as to ensure it to stay asconsistent as the practices and standards recommended by the Stock Exchange as well as the internalstandards currently practised by the Group.

BOARD COMPOSITIONThe Board currently comprises eleven members (The Chairman, six Executive Directors and four IndependentNon-Executive Directors) of which at least one member has the appropriate accounting qualification or relatedfinancial management expertise as required by the Stock Exchange.

The Board has maintained a balance of skills and experience appropriate for the requirements of the businessesof the Group. Its composition represents a mixture of management, accounts and finance, marketing,manufacturing, procurement, and legal qualifications with comprehensive experience in and exposure todiversified businesses.

The Board is responsible for overseeing the Group’s strategic planning and development, and determining theobjectives, strategies and policies of the Group. Each Executive Director has assigned with specificresponsibilities to enhance the effectiveness of the Group:-

— Director of Execution, as Chief Executive Officer, is responsible for overseeing and coordinating theGroup’s business affairs for furtherance of the Group’s vision.

— Director of Operations, as Chief Operating Officer, is responsible for overseeing the Group’s generalmanagement.


62

BOARD COMPOSITION (Cont’d)— Director of Process, as Chief Marketing Officer, is responsible for the Group’s licensing business as well

as sales and marketing of the Group’s brand products.

— Director of Resources, as Group Treasurer, is responsible for the Group’s Financial, Treasury and Logisticsmatters.

— Director of Project, as Chief Project Officer, is responsible for the integration and coordination of theGroup’s European operations and strategic alliance.

— Director of Business Development, as Chief Business Development Officer, is responsible for overseeingthe Group’s business development programme with current focus in Asia.

— Director of Planning and Control, as Corporate Planning Director, is responsible for the Corporate Planning,Control and Compliance matters.

Details of the composition of the Board, by category of Directors, including names of Chairman and ChiefExecutive, Executive Directors, Independent Non-Executive Directors and their respective experience andqualification are included in the Biographical Details of Directors’ and Senior Management Section of thisAnnual Report and also the Group’s websites.

The Company also maintains an insurance coverage for the Directors in order to prevent the Directors fromsuffering any liabilities as a result of any legal proceeding against the Company or any of its subsidiaries,which is in line with the recommended best practice suggested by the Stock Exchange.


63

BOARD MEETINGSThe Board met regularly throughout the year to discuss the business development, operational and financialperformance of the Group.

The attendance rates of individual Board members at the Board Meetings (either in person on by phone) heldduring the year are set out in the following table:

Attendance of Board Members

Number of BoardTotal number of Meetings attended by

Name of Directors Board Meetings Held individual Director

13

Chairman and Chief ExecutiveHans-Joerg SEEBERGER 5

Executive DirectorsPeter Ka Yue LEE 11Michael Richard POIX 4Ho Yin CHIK 11David Wai Kwong WONG 9Shunji SAEKI 3Michael BOMMERS 3

Independent Non-Executive DirectorsCharles Cho Chiu SIN 2Eduardo Tang Lung LAU 4Professor Zhengfu WANG 3Andy Yick Man NG (appointed as IndependentNon-Executive Director on 13th July, 2005) —

Other Board Meetings with the attendance of senior management were held regularly during the year to discuss theday-to-day management and administration as well as the recent business development of the Group.

All minutes of the Board Meetings are prepared and kept by the Company Secretarial Department and openfor inspection by Directors upon reasonable notice.


64

CHAIRMAN AND CHIEF EXECUTIVEMr. Seeberger is currently the Chairman and Chief Executive of the Group. He is responsible for the Group’soverall strategic planning, objectives setting and corporate development as well as the management of theBoard affairs. Day-to-day management of the Group’s businesses are vested in the respective Board of theoperating companies.

The Board does not have the present intention of separating the role between “Chairman” and “Chief Executive”.The Board believes that it is more effective for the title of “Chairman and Chief Executive” be vested in oneperson based on the Group’s ongoing business experience, and the trade practice in Continental Europe fromwhich over 60% of the Group’s revenue is derived. Moreover, it is also in line with the conclusion reached bycertain independent academic researches in the United Kingdom and the United States that a separationbetween the role “Chairman” and “Chief Executive” as a philosophical rule does not improve corporateperformance.

PROGRAM OF CONTINUOUS PROFESSIONAL DEVELOPMENT FOR DIRECTORS AND EMPLOYEESIn order that the Directors (i) are kept informed of major changes that may affect the Group’s businesses andchanges in relation to the Listing Rules and other rules and regulations; and (ii) can develop and refresh theirknowledge and skills to help ensure that their contribution to the Board remains informed and relevant, theDirector of Corporate Planning Department has been running a “Continuous Professional Development Program”for Directors on issues including Corporate Governance and Financial Reporting Standard. The Group alsoencourages the Board Members to attend different seminars which are relevant to their duties and professionalexpertise from time to time.

Apart from organizing Continuous Professional Development Program for Directors, the Corporate PlanningDepartment has also organized a workshop “Know Yourself, Our Team, Our Company” for employees of theGroup’s Hong Kong and PRC offices. The aims of the workshop are to enable the employees getting moreacquainted with the Group’s mission, corporate strategies, core value, latest business development and theirrole in contributing to the Group’s mission, corporate strategies and value chain.

DIRECTORS’ SECURITIES TRANSACTIONSThe Group has adopted its own “Code for Securities Transactions by Directors” (“Code of Conduct”) and“Code for Securities Transactions by Employees” to govern the Directors’ and certain employees’ (who arelikely to be in possession of unpublished price-sensitive information of the Group) securities transactions arein compliance with the terms set out in the Model Code (Appendix 10 of the Listing Rules).

Confirmations have been obtained from all Directors to acknowledge compliance with the Model Code and theCode of Conduct throughout the year.

DIRECTORS’ AND AUDITORS’ RESPONSIBILITIES FOR ACCOUNTSThe Directors’ responsibilities for the accounts are set out on page 70, and the responsibilities of the externalAuditors to the shareholders are set out on page 70.


65

REMUNERATION OF DIRECTORSA Remuneration Committee comprising all four Independent Non-Executive Directors (Mr. Charles Cho ChiuSIN, Mr. Eduardo Tang Lau LAU, Professor Zhengfu WANG and Mr. Andy Yick Man NG) and Mr. David WaiKwong WONG, Executive Director, was established in January 2005. The main role of the RemunerationCommittee is to determine and agree with the Board the framework or broad policy for the remuneration of theChairman, Executive Directors and Independent Non-Executive Directors of the Company including itssubsidiaries and such other members of the executive management reporting to the Board. A written terms ofreference for the Remuneration Committee, which clearly defined the role, authority and function of theRemuneration Committee, has been adopted by the Group.

One Remuneration Committee Meeting with the attendance (either in person or by phone) of four committeemembers (Mr. Eduardo Tang Lau LAU, Professor Zhengfu WANG, Mr. Andy Yick Man NG and Mr. David WaiKwong WONG) was held to review the existing remuneration packages for Directors, senior management andemployees of the Group and to make recommendations to the Board to improve the Group’s existingremuneration policy.

The main principles of the Group’s remuneration policies are:

(a) No individual should determine his or her own remuneration;

(b) Remuneration should be broadly aligned with companies with whom the Group competes for humanresources; and

(c) Remuneration should reflect performance, job complexity and responsibility so as to attract, motivateand retain high performing individuals and to enhance the return of investment to shareholders.

The remuneration packages offered to the Executive Directors of the Group are principally structured so as tolink rewards to corporate and individual performance.

No Executive Director has entered into a service contract with the Company or any of its subsidiaries with anotice period in excess of one year or with provisions for predetermined compensation for termination whichexceeds one year’s salary and benefits-in-kinds. None of the Executive Directors has entered a fixed contractwith duration of more than 3 years. The above policies also apply to the senior management.

Non-Executive Directors are paid fees in line with market practice, as determined having regard to therecommendation of the “Higgs Report” in the United Kingdom on the Review of the Role and Effectivenessof Non-Executive Directors in its calculation of the fees of Non-Executive Directors. In summary, referencewas made to the workload, scale and complexity of business, responsibility and the attendance rate of themeetings of the Non-Executive Directors.


66

AUDIT COMMITTEEAn Audit Committee comprising three Independent Non-Executive Directors (Mr. Eduardo Tang Lau LAU,Professor Zhengfu WANG and Mr. Andy Yick Man NG, who was appointed as a committee member on 13thJuly, 2005) was established in December 1998. Amongst the Audit Committee Members, at least one memberhas the appropriate professional qualification and experience in financial matters as required by the ListingRules. A written terms of reference for the Audit Committee, which clearly defined the role, authority andfunction of the Audit Committee, has been adopted by the Group.

Four Audit Committee Meetings with the attendance (either in person or by phone) of all committee membersexcept Mr. Andy Yick Man NG, who was appointed as Independent Non-Executive Director on 13th July,2005, were held during the year (i) to review the interim and annual financial statements and the relevantsignificant financial reporting judgments; (ii) to review the remuneration of external Auditors, evaluate theindependence and objectivity of external Auditors and to determine the nature and scope of the Audit; and(iii) to review the financial and accounting policies and practices, the internal control, financial control andrisk management system of the Group.

INTERNAL CONTROL AND RISK MANAGEMENTThe internal control of the Group are designed to provide reasonable assurance that the Group’s assets andshareholders’ investments are safeguarded against unauthorised use or disposition, transactions are executedin accordance with the management’s authorisation, proper accounting records are maintained, and therelevant legislation and regulations are being complied with.

Internal control procedures and risk management systems are in place in each of the operating units and theholding company of the Group. An Internal Control System Assessment Guidelines has been adopted by theGroup for reviewing, assessing and monitoring the effectiveness of the Group’s risk management system andinternal control system in the areas of finance, operation and Listing Rules Compliance.

The Corporate Planning Department undertakes the role of reviewing and assessing the Group’s internalcontrol system implemented in the principal operations in Asia, Europe and USA for their respectiveeffectiveness and efficiency on an annual basis.

The key tasks basically include:-

— reviewing the Group’s principal activities and risk management effectiveness;

— conducting comprehensive examination of the practices and procedures as to the recognition of incomeand expenditure; and internal controls of the business units of the Group on a regular basis; and

— undertaking special reviews and investigations of areas for improvement identified by management.

The Corporate Planning Department has conducted a thorough review and assessment of the Group’s existingInternal Control System especially on the following areas and has satisfied with their respective effectivenessand efficiency based on the standards and guidelines set out in the Internal Control System AssessmentGuidelines:-

The review covers all material activities, including finance, operational and compliance controls and riskmanagement.


67

FINANCEThe Company’s assets were used in an appropriate manner, the expenditures in each of the operating units ofthe Group were under a strict control, expenditures exceeding certain predetermined amounts neededmanagement’s authorisation. Accounting Records were properly maintained.

OPERATIONA hierarchical system with proper work flow and reporting procedures was duly established in each of theoperating units. Every employee was assigned with a specific area of duty and responsibility.

Regular meetings with the attendance of senior management and representatives from each of the operatingunits were held during the year so as to improve communication and identify potential issues within theGroup.

LISTING RULES COMPLIANCEThroughout the year, the Group has fully complied with the Listing Rules requirements. Financial Reports,announcements and circulars have been prepared and published in accordance with the requirements of theListing Rules.

Whilst the Board is satisfied with the overall performance of the Internal Control System, there reveal certainareas for improvement during the process. The Corporate Planning Department is taking steps to reflect suchfindings and effect them into practice in line with the “Continuous Improvement” commitment of the Group.

During the process of Internal Control review, interviews have been made with managers of the key operatingunits discussing about their units’ activities as well as performance and areas of responsibilities. Through theprocess of interview, their awareness of the concept of Financial Planning and Control, their understanding ofthe risk management, the manner in monitoring risks and system of internal control were greatly enhanced.It also helps to build up team spirit amongst every team member of the Group.

INVESTOR RELATIONS AND COMMUNICATION WITH SHAREHOLDERSThe Company continues to pursue a proactive policy of promoting investor relations and communications withshareholders.

The Corporate Planning Department is in place to coordinate and facilitate ongoing communication withshareholders, investment and financial community and media for enhancing corporate and financial awarenessto the investing public. It will also respond to enquiry from shareholders/investing public or the media. TheGroup maintains its own websites (www.egana.com and www.quamnet.com) through which the Group’s updatedfinancial information, announcements, business development, recent events and corporate activities can beaccessed by the shareholders and investors. The Company’s websites provide an alternative means for theinvesting public to obtain information of the Group in a convenient and timely manner.

The Board has established a team of designated executives located in the Group’s offices in Hong Kong,Japan, Germany and the USA to perform the role of promoting investor relations globally.

The Annual General Meetings (“AGMs”) also provide an important opportunity for constructive communicationbetween the Board and the shareholders of the Group. The Chairman and the majority of the Board memberwill attend the AGMs or other general meetings through which the Chairman can maintain an on-goingdialogue with shareholders and to answer any questions raised by the shareholders.


68

SOCIAL RESPONSIBILITYWe aim at delivering positive social value in the communities in which we serve, primarily through fourprincipal means:

— Promoting fair employment and creating safe workplace;

— Applying innovation in our business approach as well as the product coverage;

— Providing quality products and services to the customers for good value and in a responsible manner;and

— Being a good corporate citizen through contribution to community programs in which we are to addvalue.

On the community program, our objective is to reciprocate the business experience (that we have gained fromthe community in the past 30 years of operation) to the society to enable a sustainable development of theenvironment which should result in a better living for the people, and an (ever) improving business climate forfair trade and on an open competition basis.

During the year, EganaGoldpfeil and the Company sponsored the world’s 1st international corporate governanceconference — The Inaugural Asia-Pacific Corporate Governance Conference, organised by Hong Kong BaptistUniversity (August 2005), in line with our commitment to high standard of corporate governance.

In addition to sponsorship, our Director of Corporate Planning made several speeches at conferences andseminars organised by Chinese University of Hong Kong, Hong Kong Baptist University and Hong KongProfessional & Education Services Limited respectively on topics covering “Corporate Governance” and“Business Ethics”. These include “Improving Corporate Governance in SMES” (January 2005); “BusinessEthics for Quality Business” (February 2004); “Workshop on Best Corporate Governance Practice” (March2005).

We have been invited to share “What is legal may not be moral” in a business ethics seminar organised byHong Kong Baptist University to be held in March 2006.

We promulgate “work-life balance” philosophy in our daily work, and in addition to it, actively sponsorprogram with this theme, which includes the 14th International Employment Relations Association Conference:“Family-friendly Employment Policies and Practices: An East-West Perspective on Work-Life Balance” organisedby Hong Kong Baptist University (to be held in June 2006).

In December 2005, we will speak at a human resources development program organised by Hong KongBaptist University on the topic “Employment Development: Adult Learning in the Workplace”.

Mr. Seeberger, the Chairman, made two speeches at conferences held in Germany on topics relating to GlobalEconomy during the year. He also actively shares his experience on international branding and marketingstrategies at various luxury goods seminars organised by investment banks, non-profit making organisationsand academics.


69

SOCIAL RESPONSIBILITY (Cont’d)We are pleased that Mr. Seeberger has been presented the “Award of Excellence” by Club 55, the EuropeanCommunity of Marketing and Sales. This award is a milestone for Mr. Seeberger and the Group’s achievementof excellence in taking on the leadership role in the international sales and marketing arena.

To share the practical experience in operating certain advanced product development and production facilitieswith our future business leaders, we extended hospitality to post-graduate students from renowned universitiesin the US, Germany, Australia, Malaysia and Hong Kong for factory visits in the past year.

Two of our Directors (Mr. Peter Ka Yue LEE and Mr. David Wai Kwong WONG) are honored to be the HonoraryAssociate of Hong Kong Baptist University, in recognition of our contribution to the community.

REPORT OF THE AUDITORS

70

AUDITORS’ REPORT TO THE SHAREHOLDERS OFEGANA JEWELLERY & PEARLS LIMITED(Incorporated in the Cayman Islands with limited liability)

We have audited the accounts on pages 71 to 126 which have been prepared in accordance with accountingprinciples generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe Company’s Directors are responsible for the preparation of accounts which give a true and fair view. Inpreparing accounts which give a true and fair view it is fundamental that appropriate accounting policies areselected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those accounts and to reportour opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards oraccept liability to any other person for the contents of this report.

BASIS OF OPINIONWe conducted our audit in accordance with Statements of Auditing Standards issued by the Hong KongInstitute of Certified Public Accountants. An audit includes examination, on a test basis, of evidence relevantto the amounts and disclosures in the accounts. It also includes an assessment of the significant estimatesand judgements made by the directors in the preparation of the accounts, and of whether the accountingpolicies are appropriate to the circumstances of the Company and of the Group, consistently applied andadequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considerednecessary in order to provide us with sufficient evidence to give reasonable assurance as to whether theaccounts are free from material misstatement. In forming our opinion we also evaluated the overall adequacyof the presentation of information in the accounts. We believe that our audit provides a reasonable basis forour opinion.

OPINIONIn our opinion the accounts give a true and fair view of the state of affairs of the Company and the Group asat 31st May, 2005 and of the Group’s profit and cash flows for the year then ended, and have been properlyprepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Baker Tilly Hong Kong LimitedCertified Public Accountants

Robin Frederick Keppel RadcliffePractising Certificate Number P00649


CONSOLIDATED PROFIT AND LOSS ACCOUNT

(For the year ended 31st May, 2005)

71

Year ended Year ended31st May, 31st May,

Notes 2005 2004HK$’000 HK$’000

TURNOVER 3 851,352 977,633COST OF SALES (489,344) (607,521)

GROSS PROFIT 362,008 370,112OTHER REVENUES 4 43,540 22,266DISTRIBUTION COSTS (158,072) (152,593)ADMINISTRATIVE EXPENSES (153,067) (153,858)

OPERATING PROFIT 5 94,409 85,927FINANCE COSTS 6 (25,515) (22,448)

PROFIT BEFORE TAXATION 68,894 63,479TAXATION 7 5,658 5,017

PROFIT AFTER TAXATION 74,552 68,496MINORITY INTERESTS — (1)

PROFIT ATTRIBUTABLETO SHAREHOLDERS 8, 29 74,552 68,495

DIVIDENDS 9 30,621 30,572

EARNINGS PER SHARE 10BASIC 20.27 cents 22.00 cents

DILUTED N/A 21.38 cents

CONSOLIDATED BALANCE SHEET

(As at 31st May, 2005)

72

31st May, 31st May,Notes 2005 2004

HK$’000 HK$’000

Non-current assetsFixed assets 13 44,041 39,056Intangible assets 14 114,965 115,610Interest in an associated company 16 (58) (59)Investments in non-trading securities 17 150,760 80,121Deferred tax assets 27 16,645 9,646

326,353 244,374

Current assetsInventories 18 269,493 207,868Accounts receivable, net 19 85,367 286,061Royalty deposit 20, 35(d) 7,406 14,079Deposits, prepayments and other receivables 108,004 32,572Due from fellow subsidiaries 35(c) 97,628 77,956Due from a related company 35(d) 829 1,428Short-term investments 21 113 38,449Cash and cash equivalents

- Promissory notes 22 357,329 164,568- Cash and bank balances 60,820 35,267

986,989 858,248

Current liabilitiesAccounts payable, accruals and other payables 23 (128,260) (121,590)Bills payable (64,514) (59,074)Short-term bank borrowings 24 (229,043) (136,369)Current portion of long-term liabilities 25 (55,468) (25,368)Due to fellow subsidiaries 35(d) (9,391) (42,931)Due to a related company 35(d) (1,942) (1,242)Due to Directors 35(d) (255) (170)Taxation payable (1,026) (10,092)

(489,899) (396,836)

Net current assets 497,090 461,412

Total assets less current liabilities 823,443 705,786

CONSOLIDATED BALANCE SHEET


73


HK$’000 HK$’000

Non-current liabilitiesLong-term liabilities 25 (161,604) (126,559)Convertible bonds 26 — (66,300)Deferred tax liabilities 27 (1,874) (1,289)

(163,478) (194,148)

Minority interests (41) (41)

Net assets 659,924 511,597

Capital and reservesShare capital 28 206,582 158,735Reserves 29 453,342 352,862

Shareholders’ funds 659,924 511,597

Approved by the Board of Directors on 14th September, 2005 and signed on behalf of the Board by

Hans-Joerg SEEBERGER Peter Ka Yue LEEDirector Director

BALANCE SHEET


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HK$’000 HK$’000

Non-current assetsInterests in subsidiaries 15 113,662 113,662Deferred tax assets 27 50 —

113,712 113,662

Current assetsDividend receivable from subsidiaries — 30,000Deposits, prepayments and other receivables 185 142Due from subsidiaries 15(b) 348,055 384,146Cash and bank balances 11,026 3,630

359,266 417,918

Current liabilitiesAccounts payable, accruals and other payables 23 (1,464) (1,374)Current portion of long-term liabilities 25 (12,000) —Due to a subsidiary 15(c) (23,750) (129,009)Due to Directors 35(d) (255) (170)Taxation payable (694) (229)

(38,163) (130,782)

Net current assets 321,103 287,136

Total assets less current liabilities 434,815 400,798

Non-current liabilitiesLong-term liabilities 25 (108,000) (120,000)Convertible bonds 26 — (66,300)Deferred tax liabilities 27 — (20)

(108,000) (186,320)

Net assets 326,815 214,478

Capital and reservesShare capital 28 206,582 158,735Reserves 29 120,233 55,743

Shareholders’ funds 326,815 214,478

Approved by the Board of Directors on 14th September, 2005 and signed on behalf of the Board by

Hans-Joerg SEEBERGER Peter Ka Yue LEEDirector Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


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Notes 2005 2004HK$’000 HK$’000

Total equity, beginning of year 511,597 456,599

Surplus/(deficit) on revaluation ofnon-trading securities 29 4,978 (112)

Exchange differences arising ontranslation of overseassubsidiaries’ accounts 29 1,484 4,623

Net gains not recognised in theconsolidated profit and loss account 6,462 4,511

Profit for the year 29 74,552 68,495Prior year final dividend paid 29 (15,239) (12,408)Interim dividend paid 29 (22,724) (17,300)Shares issued upon conversion of

convertible bonds 28 47,847 3,632Share premium arising from conversion of

convertible bonds 29 57,453 8,068Expenses incurred in connection with

conversion of convertible bonds 29 (24) —

Total equity, end of year 659,924 511,597

CONSOLIDATED CASH FLOW STATEMENT


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Note 2005 2004HK$’000 HK$’000

Operating activitiesNet cash inflow/(outflow) generated

from operations 30(a) 98,755 (6,787)Interest paid (16,770) (13,692)Hong Kong profits tax paid (4,033) (1,618)Hong Kong profits tax refund — 1,394Overseas taxation paid (5,978) (800)

Net cash inflow/(outflow) fromoperating activities 71,974 (21,503)

Investing activitiesPurchase of fixed assets (12,659) (8,571)Sale of fixed assets 151 176Payment for intangible assets (65) (402)Interest received 20,333 11,677Redemption/(Purchase) of

short-term investments 46,852 (36,506)Additions of non-trading securities (65,660) (16,924)Refund of deposits for

investment projects — 42,856

Net cash outflow from investingactivities (11,048) (7,694)

Net cash inflow/(outflow) beforefinancing 60,926 (29,197)

CONSOLIDATED CASH FLOW STATEMENT


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Notes 2005 2004HK$’000 HK$’000

Financing activities 30(b)Proceeds from issuance of convertible bonds 39,000 78,000Expenses incurred in connection

with conversion of convertible bonds (24) —New short-term bank loans and overdrafts 64,893 1,284Repayment of short-term bank

loans and overdrafts (4,261) (14,812)New trust receipts and import loans 175,922 96,200Repayment of trust receipts and

import loans (143,786) (79,983)New long-term bank loans 120,000 91,734Repayment of long-term bank loans (41,953) (4,708)Repayment of capital element of

finance lease obligations (54) (134)Repayment of notes payable and

other long-term loans (14,971) (845)Dividends paid (37,963) (29,708)

Net cash inflow from financing 156,803 137,028

Increase in cash and cash equivalents 217,729 107,831Cash and cash equivalents,

beginning of year 199,835 91,479Effect of foreign exchange rate changes 585 525

Cash and cash equivalents,end of year 30(d) 418,149 199,835

NOTES TO THE ACCOUNTS

(Amounts expressed in Hong Kong dollars unless otherwise stated)

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1. ORGANISATION AND OPERATIONSEgana Jewellery & Pearls Limited (the “Company”) was incorporated in the Cayman Islands. Its shareshave been listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) since 27th July,1998.

The Directors consider EganaGoldpfeil (Holdings) Limited (“EganaGoldpfeil”), a limited companyincorporated in the Cayman Islands and whose shares are listed on the Stock Exchange, to be theultimate holding company.

The Company is an investment holding company. Its subsidiaries are principally engaged in (i) design,manufacturing, distribution and trading of jewellery products, (ii) licensing or assignment of brandnamesto third parties for the design, manufacturing and/or distribution of jewellery and consumer productsother than timepieces, and (iii) holding of investments.

2. PRINCIPAL ACCOUNTING POLICIESThe principal accounting policies adopted in the preparation of these accounts are set out below:

(a) Basis of preparationThe accounts have been prepared in accordance with accounting principles generally accepted inHong Kong and comply with accounting standards issued by the Hong Kong Institute of CertifiedPublic Accountants (“HKICPA”). They have been prepared under the historical cost convention asmodified by the revaluation of certain leasehold land and buildings and investments in non-tradingand trading securities.

The HKICPA has issued a number of new or revised Hong Kong Financial Reporting Standards(“HKFRS”) and Hong Kong Accounting Standards (“HKAS”) (collectively referred to as “newHKFRSs”) which are effective for accounting periods beginning on or after 1st January, 2005.

During the year, the Group has adopted the following new HKFRSs:

HKAS 36 Impairment of AssetsHKAS 38 Intangible AssetsHKFRS 3 Business Combinations

The effect of adopting these new HKFRSs is set out below in Notes 2(e)(i) and (ii).

The Group has not early adopted other new HKFRSs except for those mentioned above in theaccounts for the year ended 31st May, 2005.

The Group has already commenced an assessment of the impact of other new HKFRSs but is notyet in a position to state whether these new HKFRSs would have a significant impact on its resultsof operations and financial position.



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2. PRINCIPAL ACCOUNTING POLICIES (Cont’d)

(b) Group accounting

(i) ConsolidationThe consolidated accounts include the accounts of the Company and its subsidiaries madeup to 31st May.

Subsidiaries are those entities in which the Company, directly or indirectly, controls morethan one half the voting power; has the power to govern the financial and operating policies;to appoint or remove the majority of the members of the board of directors; or to cast majorityof votes at the meetings of the board of directors.

The results of subsidiaries acquired or disposed of during the year are included in theconsolidated profit and loss account from the effective date of acquisition or up to the effectivedate of disposal, as appropriate.

The gain or loss on disposal of a subsidiary is calculated by reference to the net assets at thedate of disposal including the attributable amount of goodwill but does not include anyattributable goodwill previously eliminated against reserves.

All significant intercompany transactions and balances within the Group are eliminated onconsolidation.

Minority interests represent the interests of outside shareholders in the operating results andnet assets of subsidiaries.

In the Company’s balance sheet, the interests in subsidiaries are stated at cost less provisionfor impairment losses. The results of subsidiaries are accounted for by the Company on thebasis of dividends received and receivable.

(ii) Associated companyAn associated company is a company, not being a subsidiary, in which an equity interest isheld for the long-term purpose and significant influence is exercised in its management.



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(b) Group accounting (Cont’d)

(ii) Associated company (Cont’d)The consolidated profit and loss account includes the Group’s share of the results of theassociated company for the year, and the consolidated balance sheet includes the Group’sshare of the net assets of the associated company and goodwill (net of accumulated impairmentlosses) on acquisition.

Equity accounting is discontinued when the carrying amount of the interest in an associatedcompany reaches zero, unless the Group has incurred obligations or guaranteed obligations inrespect of the associated company.

(iii) Translation of foreign currenciesIn the accounts of the individual companies, transactions in foreign currencies are translatedat exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed inforeign currencies at the balance sheet date are translated at rates of exchange ruling at thebalance sheet date. Exchange differences arising in these cases are dealt with in the profitand loss account.

For the purpose of consolidation, the balance sheet of subsidiaries and associated companyexpressed in foreign currencies are translated at the rates of exchange ruling at the balancesheet date whilst the profit and loss account is translated at an average rate. Exchangedifferences are dealt with as a movement in reserves.

(c) Fixed assets

(i) Leasehold land and buildingsLeasehold land and buildings are stated at valuation less accumulated depreciation.Independent valuations are performed periodically with the last valuation performed on 31stMay, 2005. In the intervening years, the Directors review the carrying value of the propertiesand adjustment is made where they consider that there has been a material change. Increasesin valuation are credited to the revaluation reserve. Decreases in valuation are first set offagainst increases on earlier valuations in respect of the same property and are thereafterdebited to operating profit. Any subsequent increases are credited to operating profit up tothe amount previously debited.

(ii) Freehold land and buildingsFreehold land is not subjected to depreciation and is stated at cost less accumulated impairmentlosses, while buildings situated thereon are stated at cost less accumulated depreciation andaccumulated impairment losses.

(iii) Other fixed assetsOther fixed assets, comprising leasehold improvements, plant and machinery, furniture andfixtures and motor vehicles, are stated at cost less accumulated depreciation and accumulatedimpairment losses.



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(c) Fixed assets (Cont’d)

(iv) DepreciationDepreciation is calculated on the straight-line basis at annual rates estimated to write off thecost or valuation of each asset over its expected useful life. Leasehold land and buildings aredepreciated over the shorter of the remaining period of the respective lease and estimateduseful life. The principal annual rates are as follows:

Freehold land NilBuildings on the freehold land 5%Leasehold improvements 10% to 25%Plant and machinery 15%Furniture and fixtures 15% to 331/3%Motor vehicles 25%

(v) Gain or loss on disposalThe gain or loss on disposal of a fixed asset is the difference between the net sales proceedsand the carrying amount of the relevant asset, and is recognised in the profit and loss account.Any revaluation reserve balance remaining attributable to the relevant asset is transferred toretained profits and is shown as a movement in reserves.

(d) Assets under leases

(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards of ownership of theassets are accounted for as finance leases. Finance leases are capitalised at the inception ofthe lease at the lower of the fair value of the leased assets and the present value of theminimum lease payments. Each lease payment is allocated between the capital and financecharges so as to achieve a constant rate on the capital balances outstanding. The correspondingrental obligations, net of finance charges, are included in current and non-current liabilities.The finance charges are charged to the profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated usefullives and the lease periods.

(ii) Operating leasesLeases where substantially all the risks and rewards of ownership of the assets remain withthe leasing company are accounted for as operating leases. Payments made under operatingleases net of any incentives received from the leasing company are charged to the profit andloss account on a straight-line basis over the lease periods.



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(e) Intangible assets

(i) Goodwill/Negative goodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’sshare of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiaries/associated companies/businesses at the date of acquisition.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each ofthose cash-generating units represents the Group’s investment in each country of operationby each primary reporting segment.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relatingto the entity sold.

Goodwill on acquisitions occurring on or after 1st January, 2001 is amortised using thestraight-line method over estimated useful lives of fifteen to twenty years. Goodwill onacquisitions that occurred prior to 1st January, 2001 was written off against reserves in theyear of acquisition or amortised over a period of fifteen years.

With the adoption of HKFRS 3, amortisation of goodwill has been discontinued since 1stJune, 2004, and the related accumulated amortisation brought forward is transferred andeliminated against the cost of the goodwill. As a result, the Group’s profit for the year ended31st May, 2005 was increased by approximately $6,740,000. Goodwill previously written offagainst reserves will not be recognised in profit and loss account when all or part of thebusinesses to which the goodwill relates is disposed or when a cash-generating unit to whichthe goodwill relates becomes impaired. Goodwill is included in intangible assets and interestsin associated companies at cost less accumulated impairment losses and subject to impairmenttesting at least annually.

Negative goodwill represents the excess of the fair value of the Group’s share of the identifiableassets, liabilities and contingent liabilities acquired over the cost of acquisition.

For acquisitions after 1st January, 2001, negative goodwill is presented in the same balancesheet classification as goodwill. To the extent that negative goodwill relates to expectations offuture losses and expenses that are identified in the Group’s plan for the acquisition and canbe measured reliably, but which do not represent identifiable liabilities at the date of acquisition,that portion of negative goodwill is recognised in the profit and loss account when the futurelosses and expenses are recognised. Any remaining negative goodwill, not exceeding the fairvalues of the non-monetary assets acquired, is recognised in the profit and loss account overthe remaining weighted average useful life of those assets; negative goodwill in excess of thefair values of those non-monetary assets is recognised in the profit and loss account immediately.

For acquisitions prior to 1st January, 2001, negative goodwill was taken directly to reserveson acquisition.



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(e) Intangible assets (Cont’d)

(i) Goodwill/Negative goodwill (Cont’d)With the adoption of HKFRS 3, negative goodwill for acquisitions after 1st June, 2004, isrecognised in the profit and loss account immediately on acquisition.

The carrying amount of negative goodwill previously recognised prior to 1st June, 2004,including that credited to the goodwill reserve, has been credited to the opening balance ofretained profits. As a result, the Group’s opening retained profits as at 1st June, 2004 wasincreased by approximately $81,963,000 with the corresponding decrease in the goodwillreserve of approximately $81,963,000.

(ii) TrademarksTrademarks are shown at historical cost or fair value. Trademarks with indefinite useful livesare carried at cost less accumulated impairment loss, if any. Trademarks with indefiniteuseful lives are not amortised but are tested for impairment.

On the first time adoption of HKAS 38, the Group reassessed the useful lives of previouslyrecognised intangible assets. As a result of this assessment, the acquired trademarks of theGroup were classified as indefinite-lived intangible assets in accordance with HKAS 38. Thisconclusion is supported by the fact that the trademarks legal rights are capable of being renewedindefinitely at insignificant cost and therefore are perpetual in duration. In addition, as thetrademarks are related to well known and long established luxury and fashion consumer brands,based on the expected future financial performance of the Group, they are expected to generatepositive cash flows indefinitely. This view is supported by LCH (Asia-Pacific) Surveyors Limited,an independent professional valuer, who has been appointed by the Group to perform anassessment of the useful lives of the trademarks in accordance with the requirements set out inHKAS 38. Having considered the factors specific to the Group, the valuer considered that thetrademarks should be regarded as an intangible asset with an indefinite useful life. Since 1stJune, 2004, the amortisation of trademarks has been discontinued and accordingly, the Group’sprofit for the year ended 31st May, 2005 was increased by approximately $738,000. Suchchange was accounted for as a change in accounting estimate which was reflected in theaccounts prospectively. Under HKAS 38, the Group re-evaluates the useful lives of the trademarkseach year to determine whether events or circumstances continue to support the view of indefiniteuseful life for the assets.



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(e) Intangible assets (Cont’d)

(ii) Trademarks (Cont’d)In accordance with HKAS 36, the Group completed its annual impairment test for thetrademarks by comparing their recoverable amounts to their carrying amounts as at 31st May,2005. The Group appointed LCH (Asia-Pacific) Surveyors Limited, independent professionalvaluer, to conduct valuations of the trademarks based on value-in-use calculation. The resultingvalues of the trademarks as at 31st May, 2005 were significantly higher than their carryingamounts.

The valuations use cash flow projections based on financial estimates covering a twelve-month period, expected royalty rates deriving from the trademarks in the range of 6% to 7%and a discount rate of 10%. The cash flows are extrapolated using a steady long-term growthrate of 3.5%. This growth rate does not exceed the long-term average growth rate for luxuryconsumer markets in which the Group operates. The Directors have considered the aboveassumptions and valuations and also taken into account the business development goingforward and the strategic distribution expansion worldwide. In the opinion of the Directors,there is no indication of impairment in the carrying amounts of the trademarks. The Directorsbelieve that any reasonably foreseeable change in any of the above key assumptions wouldnot cause the aggregate carrying amounts of the trademarks to exceed the aggregate recoverableamounts.

(iii) Research and development costsResearch costs are expensed as incurred. Costs incurred on development projects relating tothe design and testing of new or improved products are recognised as an intangible assetwhere the technical feasibility and intention of completing the product under developmenthas been demonstrated and the resources are available to do so, costs are identifiable andthere is an ability to sell or use the asset that will generate probable future economic benefits.Such development costs are recognised as an asset and amortised on a straight-line basisover a period of five years to reflect the pattern in which the related economic benefits arerecognised. Development costs that do not meet the above criteria are expensed as incurred.Development costs previously recognised as an expense are not recognised as an asset in asubsequent period.

(iv) Other intangible assetsOther intangible assets represent (1) costs of licences acquired from third parties, which havea definite useful life and are amortised using the straight-line method over their estimateduseful lives, but not exceeding twenty years; and (2) costs of acquiring the know-how ofbusinesses which are amortised using the straight-line method over their estimated usefullives of fifteen years.



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(f) Impairment of assetsAssets that have an indefinite useful life are not subject to amortisation and are tested for impairmentannually or whenever events or changes in circumstances indicate that the carrying amount maynot be recoverable. Assets that are subject to amortisation and depreciation are reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amount maynot be recoverable. An impairment loss is recognised immediately in the profit and loss account forthe amount by which the asset’s carrying amount exceeds its recoverable amount except where theasset is carried at valuation and the impairment loss does not exceed the revaluation surplus forthat same asset, in which case it is treated as a revaluation decrease. The recoverable amount isthe higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessingimpairment, assets are grouped at the lowest levels for which there are separately identifiable cashflows (cash-generating units).

An impairment loss is reversed if there has been a change in the estimates used to determine therecoverable amount. An impairment loss is reversed only to the extent that the asset’s carryingamount does not exceed the carrying amount that would have been determined if no impairmentloss had been recognised.

(g) Investments in securities

(i) Non-trading securitiesInvestments which are held for non-trading purpose are stated at fair value at the balancesheet date. Changes in the fair values of individual securities are credited or debited to therevaluation reserve until the security is sold, or is determined to be impaired. Upon disposal,the cumulative gain or loss representing the difference between the net sales proceeds andthe carrying amount of the relevant security, together with any surplus/deficit transferredfrom the revaluation reserve, is dealt with in the profit and loss account.

Where there is objective evidence that individual investment is impaired, the cumulative lossrecorded in the revaluation reserve is taken to the profit and loss account.

(ii) Trading securitiesTrading securities are carried at fair value. At each balance sheet date, the net unrealisedgains or losses arising from the changes in fair value of trading securities are recognised inthe profit and loss account. Profits or losses on disposal of trading securities, representing thedifference between the net sales proceeds and the carrying amounts, are recognised in theprofit and loss account as they arise.

(h) InventoriesInventories are stated at the lower of cost and net realisable value. Cost, calculated on the weightedaverage basis, comprises materials, direct labour and an appropriate proportion of all productionoverhead expenditure. Net realisable value is determined on the basis of anticipated sales proceedsless estimated selling expenses.

(i) Accounts receivableProvision is made against accounts receivable to the extent they are considered to be doubtful.Accounts receivable in the balance sheet are stated net of such provision.



86


(j) Cash and cash equivalentsCash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flowstatement, cash and cash equivalents comprise cash on hand, deposits held at call with banks,and cash investments with a maturity of three months or less from date of investment.

(k) Employee benefits

(i) Employee leave entitlementsEmployee entitlements to annual leave and long service leave are recognised when they accrueto employees. A provision is made for the estimated liability for annual leave and long-serviceleave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity or paternity leave are not recognised untilthe time of leave.

(ii) Profit sharing and bonus plansThe expected cost of profit sharing and bonus payments are recognised as a liability when theGroup has a present legal or constructive obligation as a result of services rendered by employeesand a reliable estimate of the obligation can be made.

Liabilities for profit sharing and bonus plans are expected to be settled within 12 months andare measured at the amounts expected to be paid when they are settled.

(iii) Pension obligationsThe Group operates a defined contribution plan, the assets of which are held in separatetrustee-administered funds. The defined contribution plan is funded by payments fromemployees and by the relevant Group companies.

The Group’s contributions to the defined contribution plan are expensed as incurred and arereduced by contributions forfeited by those employees who leave the plan prior to vesting fullyin the contributions.



87


(l) TaxationIncome tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from netprofit as reported in the profit and loss account because it excludes items of income or expensethat are taxable or deductible in other years and it further excludes items that are never taxable ordeductible. The Group’s liability for current tax is calculated using tax rates that have been enactedor substantively enacted at the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carryingamounts of assets and liabilities in the accounts and the corresponding tax bases used in thecomputation of taxable profit, and is accounted for using the balance sheet liability method. Deferredtax assets also arise from unused tax losses and unused tax credits. Deferred tax liabilities aregenerally recognised for all taxable temporary differences, and deferred tax assets are recognisedto the extent that it is probable that taxable profits will be available against which deductibletemporary differences can be utilised. Such assets and liabilities are not recognised if the temporarydifferences arose from goodwill (or negative goodwill) or from initial recognition of assets andliabilities in a transaction (other than in a business combination) that affects neither the taxableprofit nor the accounting profit.

Deferred tax is provided on temporary differences arising on investments in subsidiaries andassociated companies, except where the timing of the reversal of the temporary difference can becontrolled by the Group and it is probable that the temporary difference will not reverse in theforeseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced tothe extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the assets to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liabilityis settled or the asset realised. Deferred tax assets and liabilities are not discounted. Deferred taxis charged or credited in the profit and loss account, except when it relates to items charged orcredited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the sametaxation authority and the Group has the legally enforceable right and intends to settle its currenttax assets and liabilities on net basis.



88


(m) Contingent liabilities and contingent assetsA contingent liability is a possible obligation that arises from past events and whose existence willonly be confirmed by the occurrence or non-occurrence of one or more uncertain future events notwholly within the control of the Group. It can also be a present obligation arising from past eventsthat is not recognised because it is not probable that outflow of economic resources will be requiredor the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When achange in the probability of an outflow occurs so that outflow is probable, it will then be recognisedas a provision.

A contingent asset is a possible asset that arises from past events and whose existence will beconfirmed only by the occurrence or non-occurrence of one or more uncertain events not whollywithin the control of the Group.

A contingent asset is not recognised but is disclosed in the notes to the accounts, where necessary,when an inflow of economic benefits is probable. When inflow is virtually certain, an asset isrecognised.

(n) TurnoverTurnover represents (1) gross invoiced sales, net of discounts and returns and (2) income fromlicensing or assignment of brandnames or trademarks.

(o) Revenue recognitionProvided it is probable that the economic benefits associated with a transaction will flow to theGroup and the revenues and costs, if applicable, can be measured reliably, turnover and otherrevenues are recognised on the following bases:

(i) Sales of goodsSales of goods is recognised when the significant risks and rewards of ownership of the goodshave been transferred to customers which generally coincides with the time when the goodsare delivered to the customers and title has passed.

(ii) Income from licensing or assignment of brandnames or trademarksIncome from licensing or assignment of brandnames or trademarks is recognised on an accrualbasis in accordance with the substance of the relevant agreements.

(iii) Interest incomeInterest income is recognised on a time proportion basis, taking into account the principalamounts outstanding and the interest rates applicable.

(iv) Dividend incomeDividend income is recognised when the right to receive payment is established.



89


(p) Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or production of anasset that necessarily takes a substantial period of time to get ready for its intended use or salesare capitalised as part of the cost of that asset.

All other borrowing costs are charged to the profit and loss account in the year in which they areincurred.

(q) Segment reportingIn accordance with the Group’s internal financial reporting structure, the Group has determinedthat business segments be presented as the primary reporting format and geographical segmentsas the secondary reporting format.

In respect of geographical segment reporting, turnover and segment results are based on thedestination of delivery of merchandise. Total assets and capital expenditure are based on wherethe assets are located.

(r) Off-balance sheet financial instrumentsOff-balance sheet financial instruments arise from forward, option and swap transactions undertakenby the Group in the precious metals, foreign exchange and interest rate markets. The accountingfor these instruments is dependent upon whether the transactions are undertaken for dealing orhedging purposes.

Financial instruments undertaken for dealing purposes which consist of written currency optionsand interest rate swaps are marked to market and the gain or loss arising therefrom is recognisedin the profit and loss account.

Gains and losses on financial instruments designated and qualified as hedges, which consist ofprecious metals and currency forward contracts for hedging of firm commitments, are deferred andrecognised as part of the firmly committed transactions when they occur.

Assets relating to off-balance sheet option and interest rate swap contracts which are marked tomarket are included in “Deposits, prepayments and other receivables” in the accounts. Liabilitiesresulting from such contracts are included in “Accounts payable, accruals and other payables” inthe accounts.

3. TURNOVER AND SEGMENT INFORMATIONThe Group is principally engaged in design, manufacturing, distribution and trading of jewellery products,

licensing or assignment of brandnames to third parties for design, manufacturing and/or distribution of

jewellery and consumer products other than timepieces, and holding of investments.

(a) Primary report format - business segmentsThe Group’s businesses are managed according to the nature of their operations and the products

and services they provide. Each of the Group’s business segments represents a strategic business

unit which is subject to risks and returns that are different from those of other business segments.



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3. TURNOVER AND SEGMENT INFORMATION (Cont’d)

(a) Primary report format - business segments (Cont’d)The Group was organised on a worldwide basis into two main business segments:

• Jewellery - design, manufacturing, distribution and trading of jewellery products.

• Investments - investments in strategic investments and other trading and non-trading securities.

Strategic investments include investments in a private closed-end fund and an unlisted company

which could bring medium or long-term synergetic benefits to the Group’s businesses such as

strategic alliance and partnership with various distribution business in Asia for furtherance of

the Group’s business penetration in the region.

Year ended 31st May, 2005Jewelleryproducts Investments Group

$’000 $’000 $’000

Turnover 851,352 — 851,352

Segment results 94,406 3 94,409

Finance costs (25,515)

Profit before taxation 68,894Taxation 5,658

Profit after taxation 74,552Minority interests —

Profit attributable to shareholders 74,552

Segment assets 1,162,527 150,873 1,313,400Interest in an associated company (58) — (58)

Total assets 1,162,469 150,873 1,313,342

Segment liabilities (653,377) — (653,377)

Total liabilities (653,377) — (653,377)

Capital expenditure 12,724 — 12,724Depreciation 8,540 — 8,540Amortisation 2,132 — 2,132Write-back of provision

for bad debts 339 — 339Bad debt expense 2,690 — 2,690Write-back of provision for inventory 22,832 — 22,832



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(a) Primary report format - business segments (Cont’d)

Year ended 31st May, 2004Jewelleryproducts Investments Group

$’000 $’000 $’000

Turnover 977,633 — 977,633

Segment results 85,924 3 85,927

Finance costs (22,448)

Profit before taxation 63,479Taxation 5,017

Profit after taxation 68,496Minority interests (1)

Profit attributable to shareholders 68,495

Segment assets 1,022,451 80,230 1,102,681Interest in an associated company (59) — (59)

Total assets 1,022,392 80,230 1,102,622

Segment liabilities (590,984) — (590,984)

Total liabilities (590,984) — (590,984)

Capital expenditure 93,115 — 93,115Depreciation 10,225 — 10,225Amortisation 9,289 — 9,289Bad debt expense 2,217 — 2,217Write-back of provision for inventory 5,435 — 5,435



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(b) Secondary reporting format - geographical segmentsThe Group’s operations are mainly located in Europe, Asia Pacific and America.

In determining the Group’s geographical segments, turnover and results attributed to the segmentsare based on the destination of delivery of merchandise. Segment assets and capital expenditureare based on the geographical location of the assets.

At 31st May,Year ended 31st May, 2005 2005

Segment Capital TotalTurnover results expenditure assets

$’000 $’000 $’000 $’000

Europe 650,766 84,240 854 454,256America 76,037 (6,686) 2,655 50,947Asia Pacific 124,549 16,855 9,215 808,197

851,352 94,409 12,724 1,313,400

Interest in anassociated company (58)

1,313,342

At 31st May,Year ended 31st May, 2004 2004

Segment Capital TotalTurnover results expenditure assets

$’000 $’000 $’000 $’000

Europe 627,749 75,837 85,412 392,198America 64,805 105 2,554 47,376Asia Pacific 285,079 9,985 5,149 663,107

977,633 85,927 93,115 1,102,681

Interest in anassociated company (59)

1,102,622



93

4. OTHER REVENUESYear ended Year ended31st May, 31st May,

2005 2004$’000 $’000

Interest income 22,918 12,847Management fees 5 5Redemption premium received on maturity

of equity-linked notes 8,512 1,834Gain on disposal of fixed assets — 67Gain on revaluation of fixed assets 990 —Gain on revaluation of listed trading securities 3 3Others 11,112 7,510

43,540 22,266

5. OPERATING PROFIT

Operating profit was stated after crediting and charging the following:


2005 2004$’000 $’000

Crediting:

Interest income from- bank deposits 497 301- promissory notes 19,027 10,267- equity-linked notes 1,481 452- deposit with a fellow subsidiary 1,030 1,719- others 883 108

Gain on disposal of fixed assets — 67Gain on revaluation of

- fixed assets 990 —- listed trading securities 3 3

Auditors' remuneration- prior year over-provision 26 —

Redemption premium received on maturityof equity-linked notes 8,512 1,834

Write-back of provision for bad debts 339 —Write-back of provision for inventory 22,832 5,435



94

5. OPERATING PROFIT (Cont’d)


2005 2004$’000 $’000

Charging:

Depreciation:- owned fixed assets 8,489 10,174- leased fixed assets 51 51

Amortisation of intangible assets 2,132 9,289Loss on disposal of fixed assets 125 —Loss on disposal of intangible assets 11 —Auditors’ remuneration

- current year 1,458 2,022- prior year under-provision — 962

Operating lease rentals- leasehold land and buildings 7,736 7,916- furniture and equipment 2,705 4,058

Bad debt expense 2,690 2,217Exchange loss, net (a) 5,696 378Staff costs (including Directors’ and

senior executives’ emoluments) (Note 11) 148,922 132,051

Note:

(a) The amount mainly represented the net exchange loss relating to foreign currency options and foreign currencytransactions/translation loss.

During the year, the Group bought and sold certain foreign currency options from/to certain commercialbanks. At 31st May, 2005, the Group’s outstanding written foreign currency options with a notional principalvalue of EUR13,080,000 (2004: EUR6,800,000 and USD1,000,000) equivalent were marked to market inaccordance with the Group’s accounting policy on currency options (Note 2(r)), resulting in an unrealisedexchange loss of approximately $1,196,000 (2004: a gain of $6,665,000).

The remaining debit amount of approximately $4,500,000 (2004: $7,043,000) was related to other foreigncurrency transactions/translation loss (2004: loss).



95

6. FINANCE COSTS


2005 2004$’000 $’000

Interest on bank borrowings whollyrepayable within five years 16,367 13,746

Interest on convertible bonds 140 282Interest on other loans 51 31Interest element of finance leases 5 6Interest on advance from a fellow subsidiary 62 —Interest on advance from an associated company 7 8Bank charges 8,883 8,375

25,515 22,448

7. TAXATION(a) The amount of taxation (credited)/charged to the consolidated profit and loss account represented:


2005 2004$’000 $’000

The Company and its subsidiaries:

Current taxation:

Hong Kong profits tax- Provision for the year 767 3,839- Over-provision in prior years (4,879) —

Overseas taxation- Provision for the year 384 1,614- Under-provision in prior years 1,534 279

Deferred taxation (Note 27(a)):- Recognised during the year (3,464) (10,749)

Tax income for the year (5,658) (5,017)



96

7. TAXATION (Cont’d)Hong Kong profits tax has been provided at the rate of 17.5% (2004: 17.5%) on the estimated

assessable profit arising in or derived from Hong Kong for the year. Taxation on overseas profits has

been calculated on the estimated assessable profit for the year provided by subsidiaries with overseas

operations at the rates of taxation prevailing in the countries in which the subsidiaries operated.

(b) The taxation on the Group’s profit before taxation differs from the theoretical amount that wouldarise using the domestic profits tax rate of the Company as follows:

2005 2004$’000 $’000

Profit before taxation 68,894 63,479

Tax at the domestic profits tax rate of 17.5%(2004: 17.5%) 12,056 11,109

Tax effect of income not subject to taxation (20,059) (20,238)Tax effect of expenses that are not deductible

in determining taxable profit 2,397 2,516Tax effect of tax loss not recognised 5,454 4,903Tax effect of other temporary differences not recognised (33) 2,268Effect of different tax rates of subsidiaries

operating in other jurisdictions (2,128) (4,267)(Over)/Under-provision in prior years (3,345) 279Others — (1,587)

Tax income for the year (5,658) (5,017)

8. PROFIT ATTRIBUTABLE TO SHAREHOLDERSThe consolidated profit attributable to shareholders is dealt with in the accounts of the Company to theextent of approximately $45,024,000 (2004: $31,733,000).



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9. DIVIDENDSYear ended Year ended31st May, 31st May,

2005 2004$’000 $’000

Interim, paid, of 5.50 cents(2004: 5.50 cents) per ordinary share 22,724 17,300

Final, proposed, of 1.85 cents(2004: 4.00 cents) per ordinary share 7,897 13,272

30,621 30,572

During the year, an interim dividend of approximately $22,724,000 (2004: $17,300,000) was declaredand paid on 30th March, 2005.

At the annual general meeting to be held on 17th November, 2005, the Directors will recommend afinal dividend of 1.85 cents per ordinary share. This proposed dividend is not reflected as dividendpayable in the accounts, but will be reflected as an appropriation of retained profits for the year ending31st May, 2006, if approved by shareholders at the said meeting.

10. EARNINGS PER SHARE

(a) Basic earnings per shareThe basic earnings per share was calculated based on the consolidated profit attributable toshareholders for the year of approximately $74,552,000 (2004: $68,495,000) and the weightedaverage number of ordinary shares of approximately 367,754,000 (2004: 311,372,000) in issueduring the year.

(b) Diluted earnings per shareDuring the year ended 31st May, 2005, the Company’s share options exercise price was above theaverage fair value of one ordinary share, thus there were no dilutive potential ordinary shares.

During the year ended 31st May, 2004, diluted earnings per share was calculated based on theadjusted consolidated profit attributable to shareholders for the year of approximately $68,727,000and the weighted average number of ordinary shares of approximately 321,390,000 that would bein issue having adjusted for the effects of all dilutive potential ordinary shares issuable during theyear.



98

10. EARNINGS PER SHARE (Cont’d)

(c) ReconciliationA reconciliation of profit attributable to shareholders used in calculating the basic and dilutedearnings per share was as follows:


2005 2004$’000 $’000

Profit attributable to shareholders used incalculating basic earnings per share 74,552 68,495

Interest savings in respect of convertible bonds — 232

Profit attributable to shareholders used incalculating diluted earnings per share 74,552 68,727

A reconciliation of the number of ordinary shares for calculation of basic and diluted earnings pershare was as follows:


2005 2004

Weighted average number of ordinary sharesused in calculating basic earnings per share 367,754,000 311,372,000

Dilutive potential effect in respect ofconvertible bonds — 10,018,000

Weighted average number of ordinary sharesused in calculating diluted earnings per share 367,754,000 321,390,000

11. STAFF COSTS (INCLUDING DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS)


2005 2004$’000 $’000

Wages and salaries 148,458 131,539Staff retirement scheme contributions (Note 31) 562 538Less: Refund of forfeited contributions (Note 31) (98) (26)

148,922 132,051



99

12. DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS

(a) Directors’ emoluments(i) Details of Directors’ emoluments were set out below:

GroupYear ended Year ended31st May, 31st May,

2005 2004$’000 $’000

Fees for Executive Directors — 15Fees for Non-executive Directors — —Other emoluments for Executive Directors

- Basic salaries, housing allowances,other allowances and benefits in kind 1,634 1,528

- Contributions to pension schemes for Directors 48 48- Bonuses * — —

Other emoluments for Non-executive Directors 531 550

2,213 2,141

Note:

* The Directors were entitled to a discretionary bonus.

(ii) Analysis of Directors’ emoluments by number of Directors and emolument ranges was asfollows:


2005 2004

Executive Directors- Nil - $1,000,000 7 7

Non-executive Directors- Nil - $1,000,000 3 4

(iii) During the year, no Directors waived any emoluments and no payments as inducement to joinor upon joining the Group or as compensation for loss of office was paid or payable to anyDirector.



100

12. DIRECTORS’ AND SENIOR EXECUTIVES’ EMOLUMENTS (Cont’d)

(b) Five highest-paid individuals(i) During the year, the five highest-paid individuals did not include any Director (2004: five).

The emoluments of the five (2004: five) highest-paid individuals were analysed as below:


2005 2004$’000 $’000

Basic salaries, housing allowances,other allowances and benefits in kind 5,498 4,179

Contributions to pension schemes 70 89Bonuses — 469

5,568 4,737

(ii) Analysis of emoluments paid to the aforementioned five (2004: five) highest-paid individualsby number of individuals and emolument ranges was as follows:


2005 2004

- Nil - $1,000,000 3 2- $1,000,001 - $1,500,000 1 3- $1,500,001 - $2,000,000 1 —

5 5

(iii) During the year, no emoluments of the five highest-paid individuals were incurred as inducementto join or upon joining the Group or as compensation for loss of office.



101

13. FIXED ASSETS

GroupFreehold Leasehold Furnitureland and land and Leasehold Plant and and Motorbuildings buildings improvements machinery fixtures vehicles Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost or valuation

At 1st June, 2004 2,167 6,300 16,698 41,248 34,173 2,997 103,583Exchange adjustments — — — — 195 31 226Revaluation — 700 — — — — 700Additions — — 2,899 5,042 4,533 185 12,659Disposals — — (361) — (1,081) (218) (1,660)

At 31st May, 2005 2,167 7,000 19,236 46,290 37,820 2,995 115,508

Accumulated depreciation

At 1st June, 2004 288 143 12,034 34,360 15,982 1,720 64,527Exchange adjustments — — — — 68 6 74Revaluation — (290) — — — — (290)Charge for the year 61 147 1,303 1,861 4,396 772 8,540Disposals — — (323) — (976) (85) (1,384)

At 31st May, 2005 349 — 13,014 36,221 19,470 2,413 71,467

Net book value

At 31st May, 2005 1,818 7,000 6,222 10,069 18,350 582 44,041

At 31st May, 2004 1,879 6,157 4,664 6,888 18,191 1,277 39,056

(a) All fixed assets were stated at cost less accumulated depreciation, except for leasehold land andbuildings which were stated at valuation less accumulated depreciation.

The leasehold land and buildings situated in Hong Kong were revalued on 31st May, 2005 by LCH(Asia-Pacific) Surveyors Limited, independent professional valuers, on an open market value basis.Had those leasehold land and buildings been carried at cost less accumulated depreciation, thenet book value of the leasehold land and buildings at 31st May, 2005 would have been approximately$7,529,000 (2004: $7,733,000).



102

13. FIXED ASSETS (Cont’d)

(b) The net book values of land and buildings were analysed as follows:

2005 2004$’000 $’000

Held in Hong Kong- under leases between 10 to 50 years 7,000 6,157Held outside Hong Kong- freehold 1,818 1,879

8,818 8,036

(c) At 31st May, 2005, no asset was held under finance leases. At 31st May, 2004, the net book valueof motor vehicles held under finance leases amounted to approximately $149,000.

14. INTANGIBLE ASSETS

GroupLicences

and DevelopmentKnow-how trademarks costs Goodwill Total

$’000 $’000 $’000 $’000 $’000

Cost

At 1st June, 2004 23,094 17,521 492 97,528 138,635Exchange adjustments 133 31 — 1,661 1,825Additions — 65 — — 65Transfer from accumulated

amortisation uponadoption of HKFRS 3 — — — (11,013) (11,013)

Disposals — — (11) — (11)

At 31st May, 2005 23,227 17,617 481 88,176 129,501

Accumulated amortisation

At 1st June, 2004 7,906 4,368 126 10,625 23,025Exchange adjustments (3) 7 — 388 392Charge for the year 1,527 511 94 — 2,132Transfer to cost upon

adoption of HKFRS 3 — — — (11,013) (11,013)

At 31st May, 2005 9,430 4,886 220 — 14,536

Net book value

At 31st May, 2005 13,797 12,731 261 88,176 114,965

At 31st May, 2004 15,188 13,153 366 86,903 115,610



103

15. INTERESTS IN SUBSIDIARIESIn the Company’s balance sheet, interests in subsidiaries comprised:

Company2005 2004$’000 $’000

Unlisted shares, at cost 120,910 120,910Loan to a subsidiary (a) 14,400 14,400

135,310 135,310Less: Accumulated impairment losses (21,648) (21,648)

113,662 113,662

Notes:

(a) Loan to a subsidiary of $14,400,000 (2004: $14,400,000) was unsecured, non-interest bearing and notrepayable within one year.

(b) All of the amounts due from subsidiaries were unsecured and repayable on demand. Except for the amountsdue from subsidiaries of approximately $8,940,000 (2004: $8,739,000) which were non-interest bearing,the remaining balances due from subsidiaries bore interest at prevailing commercial rates.

(c) The amount due to a subsidiary was unsecured, non-interest bearing and repayable on demand.

(d) At 31st May, 2005, the Company provided corporate guarantees of approximately $977,359,000 (2004:$643,090,000) to secure banking and other loan facilities of certain subsidiaries.

(e) The underlying value of interests in subsidiaries was, in the opinion of the Directors, not less than theCompany’s carrying value at 31st May, 2005.



104

15. INTERESTS IN SUBSIDIARIES (Cont’d)Details of the principal subsidiaries at 31st May, 2005 were as follows:

Percentageof nominal

value of issuedPlace of Issued and capital held byincorporation/ fully paid the Company

Name operations share capital Directly Indirectly Principal activities

% %

Abel & Zimmermann Germany EUR511,292 — 85 Manufacturing andGmbH & Co KG # distribution of jewellery

Calibre Jewellery The People’s US$600,000 — 100 Manufacturing of jewellery(Shenzhen) Co. Ltd. # * Republic of China

(“PRC”)EganaGoldpfeil Benelux The Netherlands EUR18,000 — 100 Distribution of jewellery

Jewel B.V. #Egana Investments Cook Islands US$1 100 — Investment holding and

(Pacific) Limited licensing operationsEgana Jewelry & Pearls The United States US$881,000 100 — Design and distribution

(America) Corp. # of America of jewelleryEgana Juwelen & Perlen Austria EUR36,336 — 100 Distribution of jewellery

Handels GmbH #Egana Marketing Cook Islands US$1 — 100 Marketing and promotion

(Suisse) Inc.Egana Schmuck und Germany EUR25,565 100 — Design and distribution

Perlen GmbH # of jewelleryEverstone Limited Hong Kong/ $100 — 100 Manufacturing of jewellery

the PRCGuthmann + Wittenauer Germany EUR1,500,000 — 100 Manufacturing

Schmuck GmbH # and distributionof jewellery

Jacquelin Designs The United States — 100 — Design and distributionEnterprises, Inc. # of America of jewellery

Keimothai Limited # Thailand Baht81,000,000 — 100 Sourcing, manufacturingand distributionof jewellery

Oro Design Limited Hong Kong $10,000 100 — Design, manufacturing anddistribution of jewellery

Rebner GmbH # Germany EUR25,564 — 85 Investment holdingTime Success Hong Kong $2 100 — Property holding

Industrial LimitedPanorama Company Hong Kong $2 100 — Inactive

Limited

Notes:

# Audited by certified public accountants other than Baker Tilly Hong Kong Limited

* Wholly foreign-owned enterprise incorporated in the PRC.



105

16. INTEREST IN AN ASSOCIATED COMPANYInterest in an associated company comprised:

Group2005 2004$’000 $’000

Share of net assets 32 32Due to an associated company (Note 35(d)) (90) (91)

(58) (59)

The amount due to the associated company was unsecured, interest-bearing at prevailing commercialrates and was not repayable within one year.

Details of the Group’s associated company at 31st May, 2005 were as follows:

Place of Particulars Percentageincorporation/ Principal of issued of interests held

Name operation activity shares held Directly Indirectly

% %

Rossolini Limited Thailand Inactive Ordinary shares of — 30Baht1,000 each



106

17. INVESTMENTS IN NON-TRADING SECURITIESInvestments in non-trading securities comprised:

Group2005 2004$’000 $’000

Equity securities:Listed, at fair value

- in Hong Kong 75,417 3,687

Unlisted, at fair value- a private closed-end fund (a) 38,290 39,381- an unlisted company (b) 37,053 37,053

75,343 76,434

150,760 80,121

Notes:

(a) At 31st May, 2005, the Group had a strategic investment of approximately $38,000,000 (2004: $39,000,000)in one private closed-end fund. The fund was under the management of a third party Hong Kong listedinvestment banking group (“LISTED CO”). At 31st May, 2005, the fund was stated at fair value which wasdetermined by the Directors and a revaluation deficit of approximately $1,085,000 (2004: a surplus of$6,000) was recorded in the revaluation reserve. In the opinion of the Directors, there was no indication ofimpairment in the carrying value of the fund.

(b) At 31st May, 2005, the investment in the unlisted company was stated at fair value which was determined bythe Directors and a revaluation surplus of approximately $17,553,000 (2004: $17,553,000) was recordedin the revaluation reserve. In the opinion of the Directors, there was no indication of impairment in thecarrying value of the unlisted company.

18. INVENTORIES

Group2005 2004$’000 $’000

Raw materials 64,551 57,352Work-in-progress 39,335 31,817Finished goods 165,948 141,975

269,834 231,144Less: Provision for inventory (341) (23,276)

269,493 207,868

At 31st May, 2004 and 2005, no inventories were carried at net realisable value.

At 31st May, 2005, inventories of approximately $59,687,000 (2004: $48,782,000) were pledged assecurity for banking facilities granted to the Group.



107

19. ACCOUNTS RECEIVABLE, NETIn general, the Group grants an average credit period of 30-120 days to its trade customers. An aginganalysis of accounts receivable after provision for bad and doubtful debts was as follows:

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

DueIn current month 58,995 265,985 — —Between one to two months 6,198 6,880 — —Between two to three months 1,589 2,072 — —Between three to four months 1,828 7,807 — —Over four months 16,757 3,317 — —

85,367 286,061 — —

20. ROYALTY DEPOSIT - GROUPRoyalty deposit represented a deposit paid to a subsidiary of EganaGoldpfeil in connection with a sevenyears’ guaranteed minimum royalty under the “Goldpfeil” licence which bore interest at commercialrates.

21. SHORT-TERM INVESTMENTS

Group2005 2004$’000 $’000

Equity-linked notes (a) — 38,340Trading securities listed outside Hong Kong 113 109

113 38,449

Note:

(a) At 31st May, 2004, the Group had investments in certain equity-linked notes (the “ELNs”) issued by anindependent third party private company (the “Note Issuer”), in which the controlling shareholder of theLISTED CO as mentioned in Note 17(a) has a beneficial interest.

At 31st May, 2005, all of the ELNs have been redeemed by the Note Issuer on maturity.



108

22. PROMISSORY NOTESPromissory notes represented short-term deposits with independent third party companies with maturitywithin three months, which were unsecured and bore interest at prevailing commercial rates. At 31stMay, 2005, all the promissory notes were due for repayment in the period from June to August 2005 ofwhich approximately $242,014,000 was rolled over upon maturity for another one to three months.

23. ACCOUNTS PAYABLE, ACCRUALS AND OTHER PAYABLESAt 31st May, 2005, accounts payable, accruals and other payables were analysed as follows:

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

Accounts payable 69,614 65,566 — —Accrued charges and

other payables 58,646 56,024 1,464 1,374

128,260 121,590 1,464 1,374

An aging analysis of accounts payable was as follows:

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

DueIn current month 51,750 52,342 — —Between one to two months 4,513 7,170 — —Between two to three months 4,675 1,633 — —Between three to four months 3,578 2,466 — —Over four months 5,098 1,955 — —

69,614 65,566 — —

24. SHORT-TERM BANK BORROWINGS

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

Bank loans and overdrafts 168,772 108,235 — —Trust receipts and import loans 60,271 28,134 — —

229,043 136,369 — —



109

25. LONG-TERM LIABILITIESLong-term liabilities comprised:

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

Long-term bank borrowings (a) 211,567 131,944 120,000 120,000Notes payable (b) 3,977 4,072 — —Other long-term loans (c) 1,528 15,857 — —Obligations under

finance leases (d) — 54 — —

217,072 151,927 120,000 120,000Less: Current portion of

long-term liabilities (55,468) (25,368) (12,000) —

161,604 126,559 108,000 120,000

Notes:

(a) Long-term bank borrowings:

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

Repayable within a period of- within one year

- secured — 20,029 — —- unsecured 54,776 4,825 12,000 —

- in the second year- secured — 13,094 — —- unsecured 116,791 16,578 108,000 12,000

- in the third to fifth year- secured — — — —- unsecured 40,000 77,418 — 108,000

211,567 131,944 120,000 120,000Less: Amounts repayable

within one yearincluded undercurrent liabilities (54,776) (24,854) (12,000) —

156,791 107,090 108,000 120,000

On 5th March, 2004, the Company entered into a syndicated loan agreement (the “Loan Agreement”) withbanks for a three-year transferable loan facility amounting to $120 million. The syndicated loan carriesinterest at commercial lending rates and is guaranteed by certain subsidiaries of the Company. The syndicatedloan will be repaid by three semi-annual instalments and the first instalment will be payable in March 2006.

Pursuant to the Loan Agreement, the Company is required to comply with certain financial and generalcovenants. As of the date of the approval of accounts, the Directors believe that the Company has compliedin all material respects with all the financial and general covenants as required by the Loan Agreement.



110

25. LONG-TERM LIABILITIES (Cont’d)

Notes: (Cont’d)

(b) Notes payable:

Group2005 2004$’000 $’000

Repayable within a period of- within one year 94 94- in the second year 94 93- in the third to fifth year 280 281- after the fifth year 3,509 3,604

3,977 4,072Less: Amounts repayable within one year

included under current liabilities (94) (94)

3,883 3,978

At 31st May, 2005, notes payable not wholly repayable within five years amounted to approximately $3,977,000(2004: $4,072,000). These balances were unsecured, non-interest bearing and repayable by instalments.

(c) Other long-term loans:

Group2005 2004$’000 $’000

Repayable within a period of- within one year 598 366- in the second year 194 191- in the third to fifth year 664 635- after the fifth year 72 14,665

1,528 15,857Less: Amounts repayable within one year

included under current liabilities (598) (366)

930 15,491

At 31st May, 2005, other long-term loans not wholly repayable within five years amounted to approximately$1,165,000 (2004: $15,673,000). Except for an amount of approximately $1,165,000 (2004: $1,333,000)which was interest-bearing at commercial lending rates, all other balances were unsecured, non-interestbearing and repayable by instalments.



111

25. LONG-TERM LIABILITIES (Cont’d)

Notes: (Cont’d)

(d) At 31st May, 2005, the Group’s finance lease liabilities were repayable as follows:

Group2005 2004$’000 $’000

Within one year — 60Less: Future finance charges of finance leases — (6)

Present value of finance lease liabilities — 54

The present value of finance lease liabilities was as follows:Within one year — 54

Present value of finance lease liabilities — 54Less: Amounts repayable within one year

included under current liabilities — (54)

— —



112

26. CONVERTIBLE BONDSGroup and Company

2005 2004$’000 $’000

Beginning of year 66,300 —Issued during the year (a) 39,000 78,000Converted to ordinary shares (b) (105,300) (11,700)

End of year — 66,300

(a) On 10th February, 2004, the Company entered into a subscription agreement (as amended by aletter agreement dated 26th February, 2004) (the “Subscription Agreement”) with Merrill LynchInternational (“Merrill Lynch”) whereby the Company agreed to issue convertible bonds up to amaximum of US$45 million (equivalent to approximately $351 million) to Merrill Lynch, thesebonds bear interest at 1.5% per annum and will mature on 31st March, 2009 (the “MaturityDate”). The details of the terms and conditions of the convertible bonds were disclosed in theCompany’s Announcement dated 10th February 2004.

On 26th February, 2004, the Company issued convertible bonds (the “Tranche 1 Bonds”) ofUS$10 million (equivalent to approximately $78 million) to Merrill Lynch. Tranche 1 Bondsamounting to US$1.5 million (equivalent to $11.7 million) were converted into ordinary shares inprior year, with the remaining balance of US$8.5 million (equivalent to $66.3 million) convertedinto ordinary shares in the current year.

On 4th February, 2005, the Company issued convertible bonds (the “Tranche 3a Bonds”) of US$5million (equivalent to approximately $39 million) to Merrill Lynch. During the year, Merrill Lynchhas fully converted the Tranche 3a Bonds into ordinary shares.

In accordance with the terms and conditions of the subscription letter dated 10th February, 2004,the Company has granted Merrill Lynch subscription rights to subscribe for approximately 5.5million ordinary shares and 3.5 million ordinary shares in respect of the Tranche 1 Bonds andTranche 3a Bonds respectively.

As at 31st May, 2005, options exercisable by either the Company or Merrill Lynch to issue Tranche1a Bonds, Tranche 2a and 2b Bonds and Tranche 3b Bonds under the Subscription Agreementhave not been exercised and expired in accordance with the terms of the Subscription Agreement.

(b) During the year, convertible bonds (Tranche 1 Bonds and Tranche 3a Bonds) amounting to US$13.5million (equivalent to approximately $105.3 million) were converted into ordinary shares asmentioned in Note 28.



113

27. DEFERRED TAX ASSETS/(LIABILITIES)(a) The movements on deferred tax assets/(liabilities) were as follows:

Group2005 2004$’000 $’000

Beginning of year 8,357 (2,392)Exchange adjustments (155) —Recognised during the year 3,464 10,749Transfer from taxation payable 3,105 —

End of year 14,771 8,357

Provided for in respect of:Accelerated depreciation allowances (1,874) (1,061)Unrealised profit in inventories of subsidiaries 6,779 9,410Deferred expense/(income) 434 (228)Tax losses carried forward 9,432 236

14,771 8,357

Company2005 2004$’000 $’000

Beginning of year (20) —Recognised during the year 70 (20)

End of year 50 (20)

Provided for in respect of:Deferred expense/(income) 50 (20)

50 (20)

No deferred taxation was provided for non-trading securities revaluation surplus as such surpluswould not constitute a temporary difference for taxation purpose and the realisation of the reservestherefrom would not be subject to taxation.



114

27. DEFERRED TAX ASSETS/(LIABILITIES) (Cont’d)

(b) Deferred taxation is calculated in full on temporary differences under the balance sheet liabilitymethod using a principal taxation rate of 17.5% (2004: 17.5%). Deferred tax assets and liabilitiesare offset when there is a legally enforceable right to set off current tax assets against current taxliabilities and when the deferred tax relates to the same fiscal authority. The following amounts areshown in the balance sheet:

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

Deferred tax liabilities (1,874) (1,289) — (20)Deferred tax assets 16,645 9,646 50 —

14,771 8,357 50 (20)

(c) At 31st May, 2005, the Group has unused tax losses of approximately $85,776,000 (2004:$50,704,000) available for offset against future profits. Deferred tax asset has been recognised inrespect of approximately $23,175,000 (2004: $1,351,000) of such losses. No deferred tax assethas been recognised in respect of the remaining $62,601,000 (2004: $49,353,000) due to theunpredictability of future profit streams. The unrecognised tax losses will expire through 5 years toindefinitely.

28. SHARE CAPITALShare capital comprised:

Group and Company2005 2004 2005 2004

Number of ordinary shares $’000 $’000

Authorised:Beginning and end of year 500,000,000 500,000,000 250,000 250,000

Issued and fully paid:Beginning of year 317,470,029 310,205,869 158,735 155,103Issued upon exercise of

convertible bonds 95,694,423 7,264,160 47,847 3,632

End of year 413,164,452 317,470,029 206,582 158,735



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28. SHARE CAPITAL (Cont’d)

At 31st May, 2005, the Company had issued a total of 95,694,423 (2004: 7,264,160) new ordinaryshares of $0.5 each in the Company upon the conversion of $105,300,000 (2004: $11,700,000)convertible bonds as set out in Note 26. Share premium of approximately $57,453,000 (2004:$8,068,000) arose from the issuance of new ordinary shares.

Share optionsAt the Extraordinary General Meeting of the Company held on 26th June, 1998, the Executive ShareOption Scheme was approved and adopted. Share options are granted to eligible full-time employeesincluding the Executive Directors of the Company and its subsidiaries. A nominal consideration at $1would be paid by the employees for each lot of share options granted. Share options are subjected to amaximum of 10% of the issued share capital of the Company from time to time.

Details of outstanding share options:

At 31st May, 2005 At 31st May, 2004No. of No. of

Exercise No. of options Exercise No. of optionsDate granted Expiry date price options vested price options vested

$ ’000 ’000 $ ’000 ’000

Directors09/01/2000 23/07/2008 2.24 3,550 — 2.24 3,550 —12/01/2000 23/07/2008 2.24 — — 2.24 250 —17/01/2000 23/07/2008 2.24 250 — 2.24 250 —

3,800 — 4,050 —

Employees under continuous contracts(excluding Directors)

07/01/2000 to31/01/2000 23/07/2008 2.24 9,075 — 2.24 9,075 —

9,075 — 9,075 —

12,875 — 13,125 —

No share options were granted (2004: Nil), exercised (2004: Nil) or cancelled (2004: Nil) during theyear.

250,000 share options were lapsed (2004: Nil) during the year.



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29. RESERVES

GroupMovements of reserves for the Group for the year ended 31st May, 2005 were as follows:

ExchangeShare translation Retained Revaluation Other

premium reserve profits Goodwill reserve reserve Total$’000 $’000 $’000 $’000 $’000 $’000 $’000

Beginning of year 39,295 12,354 214,883 68,814 17,447 69 352,862Effect of adopting HKFRS 3

(Note 2(e)(i)) — — 81,963 (81,963) — — —

Beginning of year,as restated 39,295 12,354 296,846 (13,149) 17,447 69 352,862

Share premium arising fromconversion of convertiblebonds (Note 28) 57,453 — — — — — 57,453

Expenses incurred inconnection with conversionof convertible bonds (24) — — — — — (24)

Exchange differences arisingon translation of overseassubsidiaries’ accounts — 1,484 — — — — 1,484

Surplus on revaluation ofnon-trading securities — — — — 4,978 — 4,978

Profit for the year — — 74,552 — — — 74,5522004 final dividend paid — — (15,239) — — — (15,239)Interim dividend paid — — (22,724) — — — (22,724)

End of year 96,724 13,838 333,435 (13,149) 22,425 69 453,342

Representing:2005 Final dividend proposed 7,897Others 325,538

Retained profits at end of year 333,435



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29. RESERVES (Cont’d)

Group (Cont’d)Movements of reserves for the Group for the year ended 31st May, 2004 were as follows:

ExchangeShare translation Retained Revaluation Other

premium reserve profits Goodwill reserve reserve Total$’000 $’000 $’000 $’000 $’000 $’000 $’000

Beginning of year 31,227 7,731 176,096 68,814 17,559 69 301,496Share premium arising from

conversion ofconvertible bonds(Note 28) 8,068 — — — — — 8,068

Exchange differences arisingon translation of overseassubsidiaries’ accounts — 4,623 — — — — 4,623

Deficit on revaluation ofnon-trading securities — — — — (112) — (112)

Profit for the year — — 68,495 — — — 68,4952003 final dividend paid — — (12,408) — — — (12,408)Interim dividend paid — — (17,300) — — — (17,300)

End of year 39,295 12,354 214,883 68,814 17,447 69 352,862



At 31st May, 2004 and 2005, all the reserves of the Group were attributable to the Company and itssubsidiaries.



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29. RESERVES (Cont’d)

CompanyMovements of reserves for the Company for the year ended 31st May, 2005 were as follows:

Share Retainedpremium profits Total

$’000 $’000 $’000

Beginning of year 39,295 16,448 55,743Share premium arising from conversion of

convertible bonds 57,453 — 57,453Expenses incurred in connection with

conversion of convertible bonds (24) — (24)Profit for the year — 45,024 45,0242004 final dividend paid — (15,239) (15,239)Interim dividend paid — (22,724) (22,724)

End of year 96,724 23,509 120,233



Movements of reserves for the Company for the year ended 31st May, 2004 were as follows:

Share Retainedpremium profits Total

$’000 $’000 $’000

Beginning of year 31,227 14,423 45,650Share premium arising from conversion of

convertible bonds 8,068 — 8,068Profit for the year — 31,733 31,7332003 final dividend paid — (12,408) (12,408)Interim dividend paid — (17,300) (17,300)

End of year 39,295 16,448 55,743





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30. NOTES TO CONSOLIDATED CASH FLOW STATEMENT(a) Reconciliation of net cash inflow/(outflow) generated from operations:


2005 2004$’000 $’000

Profit before taxation 68,894 63,479Depreciation 8,540 10,225Amortisation of intangible assets 2,132 9,289Loss/(Gain) on disposal of fixed assets 125 (67)Gain on revaluation of fixed assets (990) —Loss on disposal of intangible assets 11 —Gain on revaluation of listed trading securities (3) (3)Redemption premium received on maturity of

equity-linked notes (8,512) (1,834)Interest income (22,918) (12,847)Interest expense 16,632 14,073

Operating profit before working capital changes 63,911 82,315Increase in inventories (59,391) (1,737)Increase in due from fellow subsidiaries (18,914) (12,269)Decrease/(Increase) in due from a related company 598 (766)Decrease/(Increase) in accounts receivable 200,939 (155,190)(Increase)/Decrease in deposits, prepayments and

other receivables (65,855) 47,257Increase/(Decrease) in accounts payable,

accruals and other payables 5,569 (10,165)Increase in bills payable 5,405 22,084Decrease in due to an associated company (1) (37)(Decrease)/Increase in due to fellow subsidiaries (34,849) 23,174Increase in due to a related company 697 1,242Increase in due to Directors 85 120Effect of foreign exchange rate changes 561 (2,815)

Net cash inflow/(outflow) generated from operations 98,755 (6,787)



120

30. NOTES TO CONSOLIDATED CASH FLOW STATEMENT (Cont’d)(b) Analysis of changes in financing during the year:

Year ended 31st May, 2005 2004Share Notes

capital payable(including Long-term Short-term Finance and other

share Other Dividend bank bank lease long-term Convertible Minoritypremium) reserve payable borrowings borrowings obligations loans bonds interests Total Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Beginning of year 198,030 69 — 131,944 136,369 54 19,929 66,300 41 552,736 381,704Net cash (outflow)/

inflow from financing (24 ) — (37,963 ) 78,047 92,768 (54 ) (14,971 ) 39,000 — 156,803 137,028Conversion of convertible bonds 105,300 — — — — — — (105,300 ) — — —Share of profit by

minority shareholders — — — — — — — — — — 1Share of exchange translation

reserve by minorityshareholders — — — — — — — — — — 12

Prior year final dividend paid — — 15,239 — — — — — — 15,239 12,408Interim dividend paid — — 22,724 — — — — — — 22,724 17,300Exchange adjustments — — — 1,576 (94 ) — 547 — — 2,029 4,283

End of year 303,306 69 — 211,567 229,043 — 5,505 — 41 749,531 552,736

(c) Acquisition of business:


2005 2004$’000 $’000

Net liabilities acquired:Inventories — 5,844Deposits, prepayment and other receivables — 1,323Accounts payable, accruals and other payables — (12,514)

— (5,347)Goodwill — 84,142

Consideration — 78,795

Satisfied by:Set off against accounts receivable — 78,795



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30. NOTES TO CONSOLIDATED CASH FLOW STATEMENT (Cont’d)(d) Analysis of cash and cash equivalents:

2005 2004$’000 $’000

Promissory notes (Note 22) 357,329 164,568Cash and bank balances 60,820 35,267

418,149 199,835

31. PENSION SCHEMEThe Group has participated in the defined Mandatory Provident Fund Scheme in Hong Kong since 1stDecember, 2000 and made monthly contributions to the scheme based on 5% - 7% of the employees’basic salaries. The contributions were subject to a maximum of $1,000 per month per employee andthereafter contributions are voluntary. During the year, the Group’s employer’s contribution for pensionscheme was approximately $562,000 (2004: $538,000). The assets of the fund were held separatelyfrom those of the Group and were managed by independent professional fund managers.

Forfeited contributions totalling $98,000 (2004: $26,000) were utilised during the year.

32. CONTINGENT LIABILITIESContingent liabilities not provided for in the accounts were summarised below:

Group Company2005 2004 2005 2004$’000 $’000 $’000 $’000

Discounted bills with recourse 40,506 423 — —Corporate guarantees provided

to financial institutions inrespect of facilities grantedto subsidiaries (Note 15d) — — 931,280 597,226

Corporate guarantees providedto other institutions inrespect of facilitiesgranted to subsidiaries(Note 15d) — — 46,079 45,864

In addition, the Company guaranteed the payment and performance by a subsidiary under a licenseagreement pursuant to which the subsidiary was a licensee.



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33. BANKING FACILITIESAt 31st May, 2005, the Group’s banking facilities for overdrafts, loans and trade finance were securedby unconditional and continuing corporate guarantees provided by the Company and certain subsidiariesand cross guarantees among its subsidiaries.

34. COMMITMENTS(a) At 31st May, 2005, the Group had future aggregate minimum lease payments under non-cancellable

operating leases as follows:

2005 2004Leasehold Furniture Leasehold Furnitureland and and land and andbuildings equipment buildings equipment

$’000 $’000 $’000 $’000

Payable:- Not later than one year 6,482 2,444 2,980 1,209- Later than one year

and not later thanfive years 22,880 1,192 7,948 478

- Later than five years 20,919 — 4,615 —

50,281 3,636 15,543 1,687

(b) At 31st May, 2005, the Group had future aggregate minimum payments under license agreementsas follows:

2005 2004$’000 $’000

Payable:- Not later than one year 27,420 29,194- Later than one year and not later than five years 94,818 94,933- Later than five years 182,744 206,569

304,982 330,696



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34. COMMITMENTS (Cont’d)(c) (i) Off-balance sheet financial instruments

During the year, the Group entered into forward exchange and precious metals contracts inorder to hedge against firmly committed commercial transactions. The contracts were arrangedwith commercial banks and other institutions. In addition, the Group has also bought andsold some currency options. The Group had, at 31st May, 2005, outstanding forward foreignexchange contracts to sell Euro Dollar with a notional principal value of approximatelyEUR435,000 (2004: EUR340,000) equivalent, outstanding forward precious metals contractsto purchase gold and silver with a notional principal value of approximately US$4,979,000(2004: US$4,324,000) equivalent, and written currency options to sell Euro Dollar, purchaseEuro and US Dollar with notional principal values of EUR11,280,000, EUR1,800,000 andNil (2004: EUR6,800,000, Nil and US$1,000,000) equivalent respectively. Such outstandingcontracts were scheduled to settle or expire, through April 2006.

(ii) At 31st May, 2005, the Group had outstanding interest rate swap contracts with a notionalamount of approximately $120 million (2004: Nil). Such outstanding contracts were scheduledto settle or expire, through August 2007.

Save as disclosed above, neither the Group nor the Company had any significant commitments at31st May, 2005.



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35. RELATED PARTY AND CONNECTED TRANSACTIONSParties are considered to be related if one party has the ability, directly or indirectly, to control orexercise significant influence over the other party in making financial and operating decisions. Partiesare also considered to be related if they are subject to common control or common significant influence.

(a) Particulars of significant transactions between the Group and related companies during the yearwere summarised below:


2005 2004$’000 $’000

Sales of goods/services (5)

(“Trading transactions”)

Comtesse Accessoires GmbH(formerly known asComtesse Accessoires GmbH & Co.)(1) 28 9

Bartelli Leather Products Limited (1) 67 —Haru Japan Corporation, Inc. (1) 2 —Eco-Haru (Far East) Limited (1) 1,778 174Egana-Haru Mfr. Corp. Limited (1) 111 676Egana India Private Limited (1) 129 —EganaGoldpfeil Benelux Time B.V. (1) — 8,864EganaGoldpfeil — 5EganaGoldpfeil (Switzerland) Limited (1) 5,434 4,319EganaGoldpfeil Italia s.r.l. (1) 36 43Goldpfeil Guam, Inc. (1) — 1Junghans Uhren GmbH (1) 23 —Goldpfeil GmbH (1) 30 —Egana of Switzerland (Far East) Limited (1) 9 —Zeitmesstechnik GmbH (1) 19 39

Purchases of goods (6)

(“Trading transactions”)

Egana of Switzerland (Far East) Limited (1) 5 39EganaGoldpfeil Benelux Time B.V. (1) — 878EganaGoldpfeil (Switzerland) Limited (1) 103 —Egana-Haru Mfr. Corp. Limited (1) 1,443 1,742European Technology & Logistic Center GmbH (1) 13 9Bartelli Leather Products Limited (1) 62 178Zeitmesstechnik GmbH (1) 2,982 2,700EganaGoldpfeil Italia s.r.l. (1) 28 —



125

35. RELATED PARTY AND CONNECTED TRANSACTIONS (Cont’d)(a) Particulars of significant transactions between the Group and related companies during the year

were summarised below: (Cont’d)


2005 2004$’000 $’000

Interest incomeCentreline Group Limited (1) 1,030 1,719

Allocation of operating costs (7)

Egana Deutschland GmbH (1) 75,636 108,559EganaGoldpfeil Europe (Holdings) GmbH (1) 2,602 —European Technology & Logistic Center GmbH (1) 21,705 —

Sub-tenancy agreement (7)

Egana Deutschland GmbH (1) — 2,720

Consultancy fee expensesInternational Taxation Advisory Services Limited (3) 568 1,449

Interest expensesEuropean Technology & Logistic Center GmbH (1) 62 —Rossolini Limited (4) 7 8

Rental expenses (7)

Eco-Haru Property Investments Limited (1) 38 38EganaGoldpfeil Benelux Time B.V. (1) — 220EganaGoldpfeil Europe (Holdings) GmbH (1) 1,214 —

Management fee expensesEganaGoldpfeil 6,952 6,705Egana-Haru Mfr. Corp. Limited (1) 3,672 3,529

Royalty fee expenses (8)

P.C. International Marketing Limited (1) 9,005 8,659Goldpfeil GmbH (1) 1,520 1,422Egana Deutschland GmbH (1) 269 199Bartelli Leather Products Limited (1) 6,433 6,503JOOP! GmbH (2) 5,381 6,100



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35. RELATED PARTY AND CONNECTED TRANSACTIONS (Cont’d)Notes:

(1) A subsidiary of EganaGoldpfeil which is not within the Group (“fellow subsidiary”).

(2) An associated company of EganaGoldpfeil which is not within the Group (“related company”).

(3) A company in which Mr. David Wai Kwong WONG, an Executive Director of EganaGoldpfeil and theCompany, was a director.

(4) Associated company of the Group.

(5) Sales to related parties were transacted at cost plus basis with a mark-up of approximately 5% to 300%.

(6) Purchase from related parties were determined on a cost plus basis with a mark-up of approximately 5%to 300%.

(7) Allocation of operating costs and rental expenses were charged at a cost basis in accordance with theterms specified in the relevant agreements.

(8) Royalty expenses charged by P.C. International Marketing Limited were covered by the agreementsenumerated in the Company’s Announcement dated 13th April, 2005. Royalties paid to Goldpfeil GmbHand Bartelli Leather Products Limited were covered by another license agreement, pursuant to which theGroup was granted an exclusive right for design, manufacturing, and distribution of jewellery productsunder the trademark “Goldpfeil” on a worldwide basis at the sales royalty of 8% of the ex-factory price ofthe licensed products subject to a guaranteed minimum royalty of $8,000,000 per annum.

(b) During the year, the Group had transactions with related parties (as disclosed in Note 35(a) above),all of which were also deemed to be connected persons (as defined in the Rules Governing theListing of Securities on the Stock Exchange), except for consultancy fees paid to InternationalTaxation Advisory Services Limited and interest expenses paid to Rossolini Limited.

(c) The amounts due from fellow subsidiaries mainly arose from the allocation of operating costs tofellow subsidiaries according to the relevant agreements entered into between the Group companiesand their fellow subsidiaries outside the Group (see Note 35(a)(7) for details).

(d) Except for an amount due to an associated company of approximately $90,000 (2004: $91,000)(see Note 16) and a royalty deposit paid to a fellow subsidiary of approximately $7,406,000(2004: $14,079,000) (see Note 20) which were interest-bearing at commercial rates, all otherbalances with related parties and Directors were unsecured, non-interest bearing and repayablewithin one year.

36. SUBSEQUENT EVENTOn 9th August, 2005, the Stock Exchange granted the listing approval to the Company for the issuanceof Tranche 4a convertible bonds of up to US$5,000,000 to Merrill Lynch. As at 14th September, 2005,Merrill Lynch has exercised its conversion rights to convert US$2,000,000 Tranche 4a convertiblebonds into ordinary shares of the Company, resulting in an increase in shareholders’ funds of approximately$15,600,000. The outstanding US$3,000,000 Tranche 4a convertible bonds will be expiring on 31stMarch, 2009.

37. APPROVAL OF THE ACCOUNTSThe accounts were approved by the Board of Directors on 14th September, 2005.

FINANCIAL SUMMARY


127

SUMMARY FINANCIAL INFORMATION

RESULTSThe following is a summary of the published consolidated results of Egana Jewellery & Pearls Limited (the“Company”) and its subsidiaries (collectively referred to as the “Group”) for the year ended 31st December,2000, the seventeen-month period ended 31st May, 2002, and the years ended 31st May, 2003, 2004 and2005.

17-monthYear ended period ended Year ended Year ended Year ended

31st December, 31st May, 31st May, 31st May, 31st May,2000 2002 2003 2004 2005$’000 $’000 $’000 $’000 $’000

Turnover 670,648 855,738 718,382 977,633 851,352Cost of sales (375,184) (476,590) (420,431) (607,521) (489,344)

Gross profit 295,464 379,148 297,951 370,112 362,008Other revenues 12,380 34,342 33,362 22,266 43,540Distribution costs (116,775) (162,809) (101,816) (152,593) (158,072)Administrative expenses (126,764) (182,488) (152,571) (153,858) (153,067)

Operating profit 64,305 68,193 76,926 85,927 94,409Finance costs (17,065) (22,972) (15,745) (22,448) (25,515)

Profit before share of profit/(loss)of an associated company 47,240 45,221 61,181 63,479 68,894

Share of profit/(loss) of anassociated company — — — — —

Profit before taxation 47,240 45,221 61,181 63,479 68,894Taxation (4,610) (3,444) (3,241) 5,017 5,658

Profit after taxation 42,630 41,777 57,940 68,496 74,552Minority interests — 509 (1) (1) —

Profit attributable to shareholders 42,630 42,286 57,939 68,495 74,552

Earnings per shareBasic 13.75 cents 13.63 cents 18.68 cents 22.00 cents 20.27 cents

Diluted* 13.70 cents N/A N/A 21.38 cents N/A

Note:

* Diluted earnings per share was not shown for the seventeen-month period ended 31st May, 2002 and for the yearsended 31st May, 2003 and 2005 as there were no share options, warrants or any other convertible instrumentswhich could have caused dilution as at those dates.

FINANCIAL SUMMARY


128

SUMMARY FINANCIAL INFORMATION (Cont’d)

ASSETS AND LIABILITIES

At At At At At31st December, 31st May, 31st May, 31st May, 31st May,

2000 2002 2003 2004 2005$’000 $’000 $’000 $’000 $’000

Total assets 593,572 757,473 831,111 1,102,622 1,313,342Total liabilities (256,842) (351,568) (374,484) (590,984) (653,377)Minority interests — (27) (28) (41) (41)

Shareholders’ funds 336,730 405,878 456,599 511,597 659,924

Documents

Contentsirdoc.quamnet.com/irpdf/e/0926/egana_jewellery_2005an_e.pdfContents Chairman’s Statement Board of Directors Senior Executive Management The Group The Brands Corporate Information